69 FR 53675, September 2, 2004A-489-812InvestigationPOI: 07/01/02-06/30/03Public DocumentGII/O4: DEJ

August 26, 2004

MEMORANDUM TO: James J. JochumAssistant Secretary for Import Administration

FROM: Jeffrey A. May Deputy Assistant Secretary

for Import Administration

SUBJECT: Issues and Decision Memorandum for the Final Determination in theAntidumping Duty Investigation of Light-Walled Rectangular Pipe andTube from Turkey

Summary

We have analyzed the comments and rebuttal comments of interested parties in the investigationof Light-Walled Rectangular Pipe and Tube (LWRPT) from Turkey for the period July 1, 2002,through June 30, 2003. As a result of our analysis, we have made changes for the final calculations. We recommend that you approve the positions we have developed in the “Discussion of the Issues”section of this memorandum for this final determination.

Background

On April 13, 2004, the Department of Commerce (the Department) published the preliminarydetermination of the antidumping duty investigation of LWRPT from Turkey. See Light-WalledRectangular Pipe and Tube from Turkey; Notice of Preliminary Determination of Sales at Less ThanFair Value and Postponement of Final Determination, 69 FR 19390 (April 13, 2004) (PreliminaryDetermination). The period of investigation (POI) is July 1, 2002 through June 30, 2003. We gaveinterested parties an opportunity to comment on our Preliminary Determination. On July 7, 2004, the

1 The petitioners in this investigation are California Steel and Tube, Hannibal Industries, Inc., Leavitt TubeCompany, LLC, Maruichi American Corporation, Northwest Pipe Company, Searing Industries, Inc., Vest Inc., andWestern Tube and Conduit Corporation (collectively, the petitioners).

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petitioners,1 MMZ Onur Boru Profil Uretim Sanayi Ve. Ticaret A.S. (MMZ), and Ozborsan BoruSanayi ve Ticaret (Ozborsan) submitted case briefs. On July 12, 2004, these same parties submittedrebuttal briefs. The Department did not receive a request for a public hearing; consequently, no publichearing was held.

List of Issues

Below is the complete list of the issues in these reviews for which we received comments frominterested parties:

Part I – MMZ

Comment 1: Whether the Department Should Deny MMZ’s Duty Drawback Claim BecauseMMZ Did Not Use Imported Inputs to Produce Finished Merchandise Sold inthe Home Market

Comment 2: Whether the Department Should Add Duty Drawback to MMZ’s Cost ofProduction and Constructed Value

Comment 3 Whether the Department Should Classify Certain Bank Commissions andLetter of Credit Fees as Direct Selling Expenses Instead of Indirect SellingExpenses

Comment 4: Whether the Department Should Classify Sales Made Through the U.S.Commissioned Selling Agent as CEP Transactions

Comment 5: Whether the Department Should Collapse MMZ and Company A for Purposesof Calculating MMZ’s Coil Cost

Comment 6: Whether the Department Should Find that the Transfer Price BetweenCompany A and MMZ Was Above the Market Price

Comment 7: Whether the Upward Adjustment for Imported Coil Purchased Through

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Company A to the Price Paid to Home Market Suppliers in Effect Double-Counts the Duty-Drawback Adjustment to Cost of Production andConstructed Value

Comment 8: Whether the Department Should Exclude Foreign Exchange Losses Incurredon Payables from MMZ’s Computed Financial Expense

Comment 9: Whether the Department Should Adjust MMZ’s Reported Costs to Correctfor the Overstatement in MMZ’s Raw Material Cost Discovered DuringVerification

Part II – Ozborsan/Onur, Guven, and Ozdemir

Comment 10: Whether the Department Erred in its Decision to Collapse Ozborsan/Onur,Guven, and Ozdemir Into a Single Entity

Comment 11: Whether the Department Erred in Finding that Ozborsan/Onur Metal Failed toProvide Requested Information to the Department and in its Application ofTotal Adverse Facts Available

Changes in the Margin Calculations Since the Preliminary Determination

Based upon our analysis of the comments received from interested parties, for the finaldetermination we recommend making the following changes to the margin calculations used in thePreliminary Determination of this investigation:

1. Duty Drawback Adjustment

The Department disregarded the amount of duty drawback reported by MMZ under the yieldrate for coils established by the government of Turkey (GOT) and instead calculated the dutydrawback using MMZ’s own yield rate for steel coils. However, since MMZ does not separately trackits consumption of zinc, the Department was relied upon the yield rate established by the GOT for theduty drawback on zinc. See Memorandum to the File from Drew Jackson, International TradeCompliance Analyst, “Calculation Memorandum for the Final Determination,” dated August 26, 2004(Final Sales Calculation Memorandum).

2. Reclassification of Certain Selling Expenses

Based on comments made by petitioners, we have reclassified the bank commissions and letterof credit fees as direct selling expenses, rather than indirect selling expenses, for the final determination.

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See Final Sales Calculation Memorandum.

3. Revised Production Quantity for Non-Prime Products

Pursuant to a minor error reported on the first day of verification, we have revised theproduction quantity for non-prime products. See Final Sales Calculation Memorandum.

4. Adjustment to MMZ’s Raw Material Costs

Based on comments made by MMZ, we have made an adjustment to MMZ’s raw materialcosts to account for an overstatement in these raw material costs discovered during verification. SeeMemorandum from Margaret M. Pusey, Case Accountant, to Neal M. Halper, “Cost of Productionand Constructed Value Calculation Adjustments for the Final Determination – MMZ Onur Boru ProfilUretim Sanayi ve Ticaret A.S.,” dated August 26, 2004 (Final Cost Calculation Memorandum).

5. Adjustment to MMZ’s Calculated Financial Expenses

Based on comments made by MMZ, we have made an adjustment to MMZ’s calculatedfinancial expense. Specifically, we have granted an adjustment to allow the income on certaininvestments to offset financial expenses because this income was found to be interest on short-termbank accounts. See Final Cost Calculation Memorandum.

6. Adjustment to MMZ’s Calculated General and Administrative Expenses

Based upon verification findings, we have adjusted MMZ’s calculated general andadministrative expenses. See Final Cost Calculation Memorandum.

Discussion of the Issues

Part I – MMZ

Comment 1: Whether the Department Should Deny MMZ’s Duty Drawback ClaimBecause MMZ Did Not Use Imported Inputs to Produce FinishedMerchandise Sold in the Home Market

The petitioners argue that MMZ’s claim for duty drawback should be denied because MMZdid not pay any import duties on imports of inputs used to produce subject merchandise during thePOI. The petitioners note that at verification the Department found that MMZ did not pay duties oninputs of steel coil and zinc during the POI, and that it did not include duties in reported costs becauseof its participation in the Turkish duty drawback program.

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According to the petitioners, the Court of International Trade (CIT) upheld the Department’spractice of requiring payment of import duties on inputs used in producing subject merchandise sold inthe home market as a prerequisite to acceptance of a claim for an adjustment to export price (EP) forduty drawback. See Petitioners’ July 7, 2004, submission to the Department (Petitioners’ Case Brief)at 6-7 (citing Hornos Electricos de Venezuela, S.A., v. United States, 285 F. Supp. 2d 1353 (CIT2003) (HEVENSA)). Specifically, the CIT stated:

Commerce has reasonably established the payment of import duties on imports used forsales in the domestic market as a necessary prerequisite for the establishment of a dutydrawback claim. See, e.g., Final Results of Antidumping Duty Administrative Review: Silicon Metal from Brazil, 63 Fed. Reg. 6,899, 6,909 (Feb. 11, 1998) (Payment of ...duties on the importation of inputs used for domestic sales, but not for export sales, isnecessary to establish a drawback claim). HEVENSA’s failure to create a recordshowing the payment of duties on the importation of inputs used for domestic sales, butnot for export sales, defeats its duty drawback claim.

Id. at 7. The petitioners assert that this burden remains regardless of whether the Department acceptedless complete documentation in prior investigations or reviews to support an adjustment. According tothe petitioners, the facts in HEVENSA are identical to those in the present case. In both instances,import duties on inputs used to produce the subject merchandise were exempted on the export of thesubject merchandise. Moreover, in both cases, the respondent failed to demonstrate that import dutieswere paid on the inputs used to produce the merchandise sold in the home market. Citing the Notice ofFinal Determination of Sales at Less Than Fair Value; Silicomanganese from Venezuela, 67 FR 15533(April 2, 2002) (Silicomanganese from Venezuela), and the accompanying Issues and DecisionsMemorandum at Comment 6, which is the underlying antidumping proceeding at issue in HEVENSA,the petitioners state that the Department’s rationale for the prerequisite is that the duty drawback“adjustment is necessary to offset import duties that are paid on inputs used in the production ofmerchandise sold in the home market.” Id. at 9. The petitioners further claim that the objective of theduty drawback statute is to offset an imbalance that occurs when the import duty is included in the costof the input used to produce the merchandise sold in the home market, but not included in the cost ofthe input used to produce export subject merchandise because that duty is rebated or exempted byreason of the export. Id. (citing Far East Machinery Co. Ltd. v. United States, 688 F. Supp. 610 (CIT1988) (Far East Machinery I)). However, the petitioners argue that because no import duty is includedin the cost of MMZ’s home market product, no imbalance occurs, and therefore, no offsetting dutydrawback adjustment is warranted. The petitioners claim that import duties are not included in the costof MMZ’s export products or its home market product, because MMZ did not actually pay importduties on inputs used to produce subject merchandise.

According to the petitioners, the legislative history of the duty drawback adjustment supportsthe Department’s practice of requiring payment of import duties on inputs used in producing subjectmerchandise sold in the home market as a prerequisite to granting a duty drawback claim. The

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petitioners note that the Senate Report on the proposed bill provides that “in order that any drawbackgiven by the country of exportation upon exportation of the merchandise shall not constitute dumping, itis necessary to add such items to the purchase price.” See S. Rep. No. 16, 76 Cong., 1st Sess at 12(1921). The petitioners note that drawback on exports to the United States may create dumpingmargins when the cost of the import duty is included in the cost of the input used to produce subjectmerchandise sold in the home market, but the import duty is not included in the cost of the input used toproduce subject merchandise exported to the United States. They claim that this is because the duty isrebated or exempted upon export. The petitioners note that in Far East Machinery II, the CIT stated,“the receipt of duty drawback on goods exported to the United States, allows the seller to charge alower price on exports that the price charged in on home market sales without practicing pricediscrimination.” See Far East Machinery v. United States, F. Supp. 309 (CIT 1988) (Far EastMachinery II) at 314. According to the petitioners, duty drawback does not create dumping when thecost of the import duty is not included in the cost of the input used to produce the subject merchandisesold in the home market, and the import duty is also not included in the cost of the input used toproduce subject merchandise exported to the United States, such as in the present proceeding. Thepetitioners conclude that the Department should follow the practice as stated in Silicomanganese fromVenezuela and deny MMZ’s request for a duty drawback adjustment.

In rebuttal, MMZ contends that the petitioners’ argument is contrary to law and theDepartment’s longstanding practice. MMZ argues that the statute does not require that respondentshow that it paid import duties on imported raw materials. Furthermore, MMZ notes that section772(c)(1)(B) of the Tariff Act of 1930, as amended (the Act) provides that EP and constructed exportprice (CEP) “shall be…increased by…the amount of any import duties imposed by the country ofexportation, which have been rebated, or which have not been collected, by reason of exportation ofthe subject merchandise to the United States.” According to MMZ, the Act does not require arespondent to demonstrate that it paid import duties on raw materials, but rather, it must show that itwould have paid duties or that duties would not have been refunded on the raw materials had thefinished product not been exported to the United States. Further, MMZ contends that the legislativehistory to the Antidumping Act of 1921 merely states that “{i}n order that any drawback given by thecountry of exportation upon exportation of the merchandise shall not constitute dumping, it is necessaryalso to add such items to the purchase price.” Emphasis added by MMZ. MMZ notes that there wasno qualification stated in the Senate Report on entitlement to this adjustment.

MMZ claims that it has demonstrated that it would have to pay import duties on the importedraw materials used to produce subject merchandise had it not exported the specified amount of thatmerchandise to the United States. MMZ maintains that it followed the procedures for duty drawbackestablished by the GOT, submitted its completion report to the GOT demonstrating the export offinished product, and received approval from the GOT. Therefore, MMZ contends that it is entitled toa duty drawback adjustment under U.S. law.

MMZ notes that it could find no past cases in which the Department imposed the requirement

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advocated by the petitioners and cites many examples of past proceedings in which the Department hadthe opportunity to impose this requirement, but did not. See MMZ’s July 12, 2004, submission to theDepartment (MMZ’s Rebuttal Brief) at footnote 9. Moreover, MMZ argues that none of the CITcases cited by the petitioners, other than HEVENSA, mention this alleged prerequisite to establishing aclaim for a duty drawback adjustment. MMZ discusses the remaining CIT cases mentioned by thepetitioners and notes that in none of these cases did the Department impose a prerequisite that theproducer must show that it paid import duties on raw materials used to produce finished products soldin the home market. Instead, in all of the cases other than HEVENSA, the CIT upheld theDepartment’s duty drawback analysis which includes only two requirements: (1) that the import dutyand rebate are directly linked to, and dependent upon, one another, and (2) that the company claimingthe adjustment can demonstrate that there were sufficient imports of imported raw materials to accountfor the duty drawback received on the exports of the manufactured product.

Addressing the economic rationale for the duty drawback adjustment, MMZ notes that in aduty drawback situation, the exporting country has imposed a tariff regime against the inputs inquestion. MMZ contends that, in this situation, a domestic supplier of raw material can price itsmaterial very close to the world market price, plus one dollar less than the total duty cost, withoutfacing any import competition on raw materials used in goods for sale in the home market. In light ofthis fact, MMZ asserts that denying the duty drawback adjustment would improperly deny anadjustment for the difference between the price of imported and locally sourced raw material, which iscreated by the Turkish duty on imported steel coils. MMZ further argues that regardless of whether anindividual respondent paid duties on raw materials used to produce goods sold in the home market, thedomestic price of goods is still influenced by a respondent’s domestic competition because they mayhave paid import duties on raw materials. MMZ argues that Congress was aware of the tariff’s effecton home market price when it elected not to establish a requirement that respondents pay duties ongoods used to produce merchandise sold in that market. MMZ notes that, in the instant investigation,the Department verified that other Turkish manufacturers/importers did pay duties on imported steel coiland zinc in Turkey when those inputs are consumed in finished products intended for domesticconsumption.

MMZ argues that, in HEVENSA, the CIT cited Far East Machinery II for the proposition that“{t}he purpose of the duty drawback adjustment is to prevent dumping margins from arising becausethe exporting country rebates import duties and taxes for raw materials used in exported merchandise.” The CIT goes on to state, “{i}n other words, a duty drawback adjustment takes into account anydifference in prices for home market or normal value and export sales accounted for by the fact thatsuch import duties have been paid on inputs used to produce merchandise in the home market, but havenot been paid on inputs used to make merchandise exported to the United States.” See HEVENSA,285 F. Supp. 2d at 1358. However, in making this statement, MMZ observes that the HEVENSAcourt made no citation to law, regulation, or legislative history. MMZ further argues that, after correctlyciting the Department’s two-prong test, the HEVENSA court held that the Department couldreasonably impose a third requirement – that the respondent show that it actually paid duties on raw

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materials used to produce goods sold in the home market. However, MMZ observes that theDepartment has not imposed this requirement on any other respondent except for a respondent in oneother case, Silicon Metal from Brazil. See MMZ’s Rebuttal Brief at 12 (citing Final Results ofAntidumping Duty Administrative Review: Silicon Metal From Brazil, 63 FR 6899, 6909 (Feb. 11,1998) (Silicon Metal from Brazil)). Moreover, MMZ argues that this requirement was not imposed inrecent reviews involving various types of welded carbon steel pipe from Turkey and cold-rolled carbonsteel sheet from Turkey. See MMZ’s Rebuttal Brief at 13, which cites three final results ofadministrative reviews and two less than fair value final determinations. Thus, MMZ asserts, theHEVENSA decision is not indicative of the requirements of the law nor the Department’s establishedpractice. MMZ argues that the Department’s two prong-test, within the third requirement suggested bythe petitioners, is the proper policy regarding duty drawback because it acknowledges that import dutyrates affect home market prices even if there are limited imports of duty-paid products at any given dutyrate, and is influenced by the actions of all players in the home marketplace, rather than the actions ofthe sole respondent in the Department’s investigation.

Department’s Position:

We are not persuaded by the petitioners’ arguments. Section 772(c)(1)(B) of the Act statesthat “the price used to establish EP and CEP shall be increased by ... (B) the amount of any importduties imposed by the country of exportation which have been rebated, or which have not beencollected, by reason of the exportation of the subject merchandise to the United States.” In determiningwhether a duty drawback adjustment is appropriate, the Department applies a two-prong testestablishing that: (1) the import duty paid and rebate payment are directly linked to, and dependentupon, one another; and (2) that the company claiming the adjustment can demonstrate that there weresufficient imports of the imported raw material to account for the drawback received on the exports ofthe manufactured product. The CIT has consistently found this test to be reasonable. See, e.g., FarEast Machinery II. In applying this test, the Department requires that respondents providedocumentary evidence to demonstrate that both prongs of the test have been satisfied.

As stated in the Preliminary Determination, MMZ has provided documentary evidencedemonstrating that it has satisfied both prongs of the Department’s test. The Department verified thisinformation and found no discrepancies with the reported information. Moreover, the petitioners do notdispute that MMZ has met both prongs of the test. Instead, the petitioners argue that the Departmentshould deny the duty drawback offset because MMZ did not pay any import duties on imports of inputsused to produce the finished products sold in the home market.

Contrary to the petitioners’ assertion, the Department does not require a respondent todemonstrate that it paid import duties on raw materials used in the production of merchandise sold inthe home market as a prerequisite for being granted the duty drawback adjustment. In making thisargument, the petitioners seek to impose a third prong to the Department’s duty drawback test, whichis not required by the statute, the regulations, or past Department practice. There is no basis for the

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petitioners’ argument that the Department should not make a duty drawback adjustment, unless itdetermines that the cost of products sold in the home market includes duties on imported raw materials. The only requirements of section 772(c)(1)(B) are (1) “import duties imposed,” and (2) rebate, or non-collection, of those duties “by reason of the exportation of the merchandise to the United States.” Thestatute provides for the adjustment without reference to whether products sold in the home market aremade with imported raw materials. The only limitation placed on the duty drawback adjustment is thatthe adjustment to the U.S. price may not exceed the amount of import duty actually paid. See LacledeSteel Co. v. United States, slip op. 94-160 (1994) (citing Far East Mach. II at 311-12). Therefore,we disagree with the petitioners that the Department should add a third prong to the test for drawbackadjustments requiring that a respondent demonstrate that it paid import duties on raw materials used inthe production of merchandise sold in the home market.

However, when examining a duty exemption program, where duties are foregone by thegovernment of the exporting country contingent upon the producer exporting a specified amount offinished product, the Department may satisfy itself that the duty regime imposed by the country ofexportation is valid. If a producer in the home market imports raw materials subject to an import duty,but does not participate in the duty exemption program because it has no intention of exporting thefinished product, a valid duty regime would require the producer to pay the import duty. Alternatively,if the producer imported the raw material while participating in the duty exemption program, but failedto export the required quantity of finished product, a valid duty regime would require the producer topay the import duty. If the government of the exporting country failed to collect the duties fromproducers under either scenario, the Department would conclude that the duty regime is not valid anddeny the duty drawback adjustment. In a duty exemption program, the Department may requestinformation from the respondent regarding whether it paid duties on inputs used in the production offinished products sold in the home market in order to determine whether a duty regime is valid. Suchrequests should not be confused with arguments made by the petitioners as discussed above.

In making their argument, the petitioners rely on the recent CIT decision in HEVENSA, and theunderlying case Silicomanganese from Venezuela, which involves a duty exemption program. InSilicomanganese from Venezuela, the Department’s primary concern was that the respondent did notprovide adequate documentation to validate its claims that duties were payable absent exportation. Although the Department did state that “payment of these taxes and duties on the importation of inputsused for domestic sales, but not for export sales, is necessary to establish a drawback claim,” theDepartment did not intend to establish a third prong to the Department’s duty drawback test. SeeSilicomanganese from Venezuela at Comment 6. Rather, the Department was attempting to satisfyitself that the Venezuelan duty regime was valid – that duties are, in fact, paid by producers when rawmaterials are imported without participation in the duty drawback program, or that duties are payable inthe event the producer fails to export the specified quantity of finished merchandise. Specifically, therespondent in that case failed to provide the particular information about the duty drawback programthat the Department requested in a supplemental questionnaire. In HEVENSA, the CIT affirmed theDepartment’s denial of the duty drawback adjustment because the respondent failed to satisfy the first-

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prong of the duty drawback test; namely, establishing that “import duties are actually paid and rebated,and there is a sufficient link between the cost to the manufacturer (import duties paid) and the claimedadjustment (rebate granted).” See HEVENSA, 285 F. Supp. 2d at 1358, citing Far East Machinery II (quoting Huffy Corp. v. United States, 632 F. Supp. 50, 53 (CIT 1986)).

The Department further notes that Silicon Metal from Brazil, the antidumping proceeding citedin both Silicomanganese from Venezuela and HEVENSA, also involved a request for additionalinformation based on the particular facts before the Department rather than an attempt to establish athird prong to the Department’s duty drawback test. See Final Results of Antidumping DutyAdministrative Review: Silicon Metal from Brazil, 63 FR 6899 (February 11, 1998) (Silicon Metalfrom Brazil), and accompanying Issues and Decision Memorandum at Comment 22. In that case,which also involved a duty exemption program, the Department’s primary concern was that therespondent did not provide adequate documentation to validate its claim for a duty drawbackadjustment. Specifically, the Department rejected Electrosilex’s claim for a drawback adjustmentbecause “Eletrosilex failed to demonstrate on the record that it claimed and received a duty and taxdrawback.” See Silicon Metal from Brazil at Comment 22. The Department acknowledgedEletrosilex’s claim that it paid import duties on the importation of electrodes used in producing finishedproducts sold in the home market. However, Eletrosilex provided import declaration forms that weredated after the POR as its evidence of payment of duties on imported electrodes. Thus, the issue wasnot whether the respondent paid duties on imported inputs used in the production of finished goods soldin the home market, as the petitioners contend, but was instead that “Eletrosilex failed to substantiate itsdrawback claim by not providing appropriate payment documentation on Customs duties and IPI taxesand no payment documentation on ICMS taxes imposed on importation of electrodes used for theproduction of home market sales or any support documentation for the POR.” Id. This closingstatement establishes that the issue in Silicon Metal from Brazil was limited to whether the respondentprovided adequate documentation to substantiate that it paid import duties under the Brazilian taxregime if the imported materials were not used in exports.

Furthermore, the CIT explicitly rejected the petitioners’ argument that, as a prerequisite toreceiving a duty drawback claim, a respondent must demonstrate the payment of duties on rawmaterials used to produce merchandise sold in the home market in Avesta Sheffield and Chang TiehIndustry. See Avesta Sheffield, Inc. v. United States, 838 F. Supp. 608 (CIT 1993) (AvestaSheffield); and Chang Tieh Industry Co. Ltd., Avesta Sheffield, Inc., Bristol Metals, Inc., DamascusTube Division, Damascus-Bishop Tube Co., Trent Tube Division of Crucible Materials Corporation,and the United Steel Workers of America (AFL-CIO/CLC) v. United States, 840 F. Supp. 141 (CIT1993) (Chang Tieh Industry). Specifically, in Avesta Sheffield, the CIT stated, “{petitioner} arguesthat ITA applied the statute improperly by adjusting U.S. price without first determining the extent towhich foreign market value was duty-inclusive. The statute provides for the duty drawback adjustmentwithout reference to any finding that the home market price is reflective of duties.” See AvestaSheffield, 838 F. Supp. at 1215. In Chang Tieh Industry, the CIT stated, “{petitioner’s} argumentsprovide no basis from which to conclude that drawback adjustments should not be made unless the

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Department determines that the cost of the products sold in the home market is duty-inclusive. Torequire such a finding would add a new hurdle to the drawback test that is not required by the statute.”See Chang Tieh Industry, 840 F. Supp. at 147.

The underlying cases in Avesta Sheffield and Chang Tieh Industry are WSSP from Korea andWSSP from Taiwan, respectively. See Final Determination of Sales at Less Than Fair Value: CertainWelded Stainless Steel Pipe from the Republic of Korea, 57 FR 53693 (November 12, 1992) (WSSPfrom Korea) and Final Determination of Sales at Less Than Fair Value: Certain Welded Stainless SteelPipe from the Taiwan, 57 FR 53705 (November 12, 1992) (WSSP from Taiwan). In theseinvestigations, the Department found that payment of import duties on raw materials used to producefinished goods sold in the home market was not required by the Act. The Department stated in bothinvestigations, “the statute mandates the adjustment without reference to whether products sold in thehome market are made with imported raw materials ... Therefore, we disagree with the petitioners thatthe Department should add a third prong to the test for drawback adjustments requiring examination ofthe relative usage of imported materials in export and home market sales.” See WSSP from Korea, 57FR at 53694 and WSSP from Taiwan, 57 FR at 53709.

In sum, the arguments put forth by the petitioners are not persuasive. Therefore, for the finalresults, the Department will continue to grant MMZ a duty drawback adjustment.

Comment 2: Whether the Department Should Add Duty Drawback to MMZ’s Costof Production and Constructed Value

MMZ argues that, in the Preliminary Determination, the Department erred in increasing MMZ’scost of production (COP) by the amount of duties on imported raw materials that were exempted underTurkey’s duty drawback program because these costs were never incurred by MMZ. Citing section777(b)(3) of the Act, MMZ argues that the Department’s adjustment is contrary to law. MMZ assertsthat the raw materials imported under Turkey’s duty drawback regime were exempted from duties (i.e.,duties were not collected at the time of entry) and that, during the POI, MMZ exported the specifiedamount of finished goods, thereby satisfying its obligations under this program. MMZ further assertsthat it does not record unpaid duties as an actual or provisional cost in the records it maintains in theordinary course of business. Therefore, MMZ contends that the exempted duty costs are not reflectedin its books and records, which are kept in accordance with the generally accepted accountingprinciples (GAAP) of the exporting country.

MMZ also argues that the rationale for including exempted import duties in constructed value(CV) does not apply to COP. While CV is increased by the amount of exempted duties to avoiddouble counting the adjustment made to EP or CEP, no double counting occurs when COP iscompared to home market selling prices, which are not increased by the amount of duties exempted. MMZ asserts that the two cases cited by the Department as support for its decision do not address thequestion raised in this investigation. In Oil Country Tubular Goods from Korea: Final Results of

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Antidumping Duty Administrative Review, 64 FR 13169 (March 17, 1999) (OCTG from Korea),MMZ claims, the Department added a duty-drawback adjustment to third country selling prices inorder to make a comparison to duty-inclusive costs of production (emphasis in original). However,MMZ argues that OCTG from Korea did not claim that the COP should be increased by the amount ofany import duties that were waived. It noted only that the costs were duty-inclusive, which could havearisen in a number of ways in the ordinary course of business. Regarding the second case, MMZcontends that the Department, in Notice of Final Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR 31411 (June 9, 1998) (Salmon from Chile), does not appearto address the issue raised in this case at all.

MMZ argues that the Act clearly states that the Department can only calculate MMZ’s COPbased on the costs contained in its books and records, provided that its costs are computed inaccordance with the GAAP of Turkey. Further, MMZ asserts that there has been no claim that itsfailure to record exempted duties in its books runs counter to the GAAP of Turkey, or is otherwiseunreasonable. Because the exempted duties are not a cost, and are not recorded in its books andrecords as a cost, MMZ asserts that the Department cannot include duty drawback in its COP for thepurpose of the final determination.

Lastly, MMZ argues that the exempted duties should not be added to CV or for purposes ofcalculating the difference in merchandise adjustment (the DIFMER), because doing so would create adistortion. Specifically, MMZ argues that a distortion will arise when the duty-exempted, non-inclusiveCOP is compared to a duty-inclusive CV in order to calculate the DIFMER.

In rebuttal, the petitioners note that MMZ did not pay any import duties on the coil used toproduce the subject merchandise exported to the United States because these duties were exemptedunder Turkey’s duty drawback program. According to the petitioners, section 772(c)(1)(B) of the Actstates that import duties must be “imposed by the country of exportation” before the Department cangrant the adjustment to EP. However, in the present case, the petitioners contend that import dutieswere not “imposed by the country of exportation,” since Turkey maintains an exemption program. Therefore, the petitioners’ claim that no duty drawback adjustment to the EP is permitted under thestatute.

The petitioners continue by stating that if the Department wrongly decides that import dutieswere imposed on merchandise, and adds duty drawback to EP, it must be consistent and add theseimposed import duties to COP. The petitioners maintain that the Department’s stated purpose formaking a duty drawback adjustment to EP is to offset the cost of import duties included in the COP ofmerchandise sold in the home market. See the petitioners’ July 12, 2004, submission to theDepartment (Petitioners’ Rebuttal Brief) at 6 (citing Silicomanganese from Venezuela and CircularWelded Non-Alloy Steel Pipe from Korea: Final Results of Antidumping Administrative Review, 69FR 32492 (June 10, 2004) and the accompanying Issues and Decision Memorandum at Comment 2.) The petitioners concluded by stating that no adjustment for duty drawback should be made to EP

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unless an adjustment for duty drawback is also made to COP.

Department’s Position:

We disagree with MMZ that raw material costs should exclude normal customs duties on inputswhich are subject to duty drawback when incorporated in an exported product. As discussed above,MMZ participates in a duty exemption program where it is able to import steel coils without payingnormal customs import duties as long as it satisfies the requirements of the duty drawback license. When MMZ completes a drawback license, the GOT reviews the completed license and, if therequirements have been satisfied, notifies MMZ that MMZ is no longer liable for paying the exemptedduties. Although MMZ does not record customs duties as an expense in its normal books and records,the Department determined during the sales verification that, as MMZ argues, the imported coils weredutiable. Since the Department uniformly calculates a single cost of production which incorporates thecost of producing both exported and domestically sold finished products, that calculation must includethe cost of duties. Because the coils were dutiable, the rebate “revenue” (i.e., the official notificationfrom the GOT that MMZ is no longer liable for the exempted duties) and duty (i.e., the cost) shouldhave been reflected in the company’s books. Even in exemption programs, these offsetting revenuesand costs should have been recorded to reflect the exemption of the duty. As the exempted duties andrebate “revenue” are real costs and revenues faced by the company, it is the Department’s policy toadd in the duty costs to COP even where the company does not record such costs in its normal booksand records. Thus, the Department increases EP by the duties which were drawn back and increasesthe reported costs for the same duties.

For purposes of CV, section 773(e)(1) of the Act requires the Department to use “the cost ofmaterials and fabrication or other processing of any kind employed in producing the merchandise.” Since the Department is directed to use actual cost for COP and CV, it must account for the duties thatshould have been recorded, but which were not. The import duties which would have been incurred byMMZ on imported inputs but were exempted by virtue of exportation of the finished product were notincluded in the books and records of MMZ, but should have been. Therefore, we increased thereported cost of raw materials to include these import duties.

Lastly, regarding the petitioners’ rebuttal comment that duty drawback is not allowed under thestatute in this situation because import duties were not imposed by the country of exportation, wedisagree. As more fully discussed in Comment 1 above, section 772(c)(1)(B) of the Act explicitlyallows duty drawback in cases where the country of export maintains a duty exemption program. Moreover, the CIT has stated that “{t}he statute provides for the duty drawback adjustment withoutreference to any finding that the home market price is reflective of duties.” See Avesta Sheffield, 838F. Supp. at 1215.

Comment 3: Whether the Department Should Classify Certain Bank Commissionsand Letter of Credit Fees as Direct Selling Expenses Instead of Indirect

2 MMZ has requested business proprietary treatment for the identity of this company.

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Selling Expenses

The petitioners argue that the Department found during the sales verification that certain bankcommissions paid for transferring funds from Company A2 to MMZ and fees for cashing letters ofcredit were incurred by MMZ on a sale-specific basis. The petitioners recommend that theDepartment classify these two expenses as direct selling expenses, rather than indirect selling expenses,for the final determination.

MMZ did not comment on this issue.

Department’s Position:

We agree with the petitioners and have reclassified the bank commissions and letter of creditfees as direct selling expenses, rather than indirect selling expenses, for the final determination.

Comment 4: Whether the Department Should Classify Sales Made Through the U.S.Commissioned Selling Agent as CEP Transactions

The petitioners note that MMZ paid a commission to an unaffiliated selling agent for a smallnumber of U.S. sales made during the POI. The petitioners argue that, for the final determination, theDepartment should classify these sales as CEP sales and deduct the commission from the starting pricein calculating the CEP. According to the petitioners, these sales should be classified as CEP salesbecause both the intent of Congress and the plain language of the statute compel such treatment. Specifically, the petitioners contend that these sales were made for the account of the producer orexporter (i.e., MMZ) and thus are CEP sales under section 772 of the Act. The petitioners state thatthe statutory phrase “for the account of” refers to a principal and agent relationship. Citing Chevron,petitioners claim that the rules of statutory construction require that the Department give effect to theunambiguously expressed intent of Congress. See Petitioners’ Case Brief at 15 (citing Chevron U.S.A.Inc. v. Natural Resources Defense Council, 467 U.S. 837, 843 (S.Ct. 1984) (Chevron)). Thepetitioners claim that the statute’s use of the phrase “for the account of” is the unambiguously expressedintent of Congress that sales made for the account of a producer like MMZ must be classified as CEPtransactions.

According to the petitioners, the Department recognizes that the phrase “for the account of theproducer or exporter” refers to consignment sales, in which the selling agent does not take title to thesubject merchandise. The petitioner cites to the preliminary results in Salmon From Chile, where theDepartment said, “... CEP sales were made through unaffiliated consignment brokers for the account ofthe producer/exporter. Consistent with past practice, for these sales we deducted from CEP

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commissions charged to, and other direct expenses incurred for the account of, the producer/exporter.” See the Petitioners’ Case Brief at 16 (citing to Notice of Preliminary Results of Antidumping DutyAdministrative Review and Partial Rescission of Antidumping Duty Administrative Review: FreshAtlantic Salmon From Chile, 66 FR 18431 (April 9, 2001) (Salmon from Chile), at 18443). Further,the petitioners note that the CIT ruled in Floral Trade that “the consignee does not ever take title to theflowers, and thus has nothing to sell for its own account. Rather, the unaffiliated consignee acts as {theproducer’s} agent.” See id. at 16 (citing Floral Trade Council v. United States, 41 F. Supp. 2d 319,335 (CIT 1999) (Floral Trade)). Thus, the petitioner argues that, in CEP sales, the U.S. agent sellingthe subject merchandise for the account of the producer/exporter does not have to take title to themerchandise. According to the petitioner, the fact that MMZ’s U.S. selling agent does not take title tothe subject merchandise cannot prevent the Department from considering these sales as CEP sales.

Additionally, the petitioners argue that the definition of “sale” used by the Court of Appeals forthe Federal Circuit (CAFC) indicates that an agent does not need title to sell the subject merchandisefor the account of the producer. Specifically, the petitioner notes that the CAFC has found that theterm “sell” should be given its ordinary meaning, which is defined by Webster’s New InternationalDictionary (1932) as both “an act of selling” and “a contract whereby the absolute, or general,ownership of property is transferred from one person to another for a price, or a sum of money, or,loosely, for any consideration.” See id. at 17 (citing AK Steel Corporation v. United States, 226 F. 3d1361, 1371 (Fed. Cir. 2002) (AK Steel) and NSK v. United States, 115 F. 3d 965, 974-75 (Fed.Cir. 1997) (NSK)). In applying its definition of sales, the CAFC held that the “seller” referred to in theCEP definition is simply one who contracts to sell and “sold” refers to the transfer of ownership or title. According to the petitioners, although MMZ’s selling agent did not contract with the first unaffiliatedpurchaser in the United States, the U.S. agent did engage in “acts of selling,” by soliciting orders forsales of subject merchandise. Therefore, the petitioners conclude that the first of the NSK court’sdefinition of sale, i.e. “act of selling,” is met in the present case. For this reason, the plain meaning ofthe term “sold” in section 772(b) of the Act indicates that the U.S. agent sold the subject merchandisefor the account of the producer MMZ.

The petitioners also maintain that the relationship of the seller to the producer indicates that thesales at issue must be classified as CEP transactions. Specifically, the petitioners contend that therelationship of the unaffiliated commissioned U.S. selling agent to MMZ compels treatment of the salesin question as CEP sales. The petitioners claim that the language of section 772(b) of the Act, asdiscussed in AK Steel, indicates that CEP sales may be “for the account of the exporter” or “by a selleraffiliated with the producer or the seller.” Since the sales at issue in the present case were made “forthe account of” the producer, MMZ, these sales must be classified as CEP sales.

Additionally, the petitioners argue that the location of the sales activity indicates that the sales inquestion are CEP sales. The petitioners assert that one of the principal distinctions between EP andCEP sales is the location of the selling activity. According to the petitioners, the Statement ofAdministrative Action (SAA) provides that the CEP is “calculated by reducing the price of the first sale

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by certain expenses … associated with economic activities occurring in the United States,” includingany commissions paid. See H.R.Rep. No. 103-316, vol. 1 at 823 (1994), reprinted in U.S.C.C.A.N.,3773, 4163. The only difference between EP and CEP sales in calculating an antidumping margin isthat certain additional adjustments for economic activity occurring in the United States are made forCEP sales that are not made for EP sales. The petitioners observe that section 772(d) of the Actidentifies U.S. commissions as one of these additional adjustments. Noting that the rules of statutoryconstruction require that two parts of a statute be read so that they are not inconsistent, the petitionersclaim that interpreting sales made by a commissioned U.S. selling agent for the account of MMZ as EPsales conflicts with section 772(d) of the Act, which requires the deduction of commission expenses“incurred by or for the account of the producer or exporter, or the affiliated seller in the United Statesin selling the subject merchandise” from the CEP.

Additionally, the petitioners claim that CEP adjustments are warranted given the purpose ofthese adjustments. Citing AK Steel, the petitioners maintain that the purpose of CEP selling expensedeductions is to prevent foreign producers from competing unfairly in the U.S. market by inflating U.S.price with amounts spent by the U.S. affiliate on marketing and selling the products in the U.S. According to the petitioners, the U.S. price for the sales in question was inflated to account for the salesagent’s commissions. The petitioners contend that the U.S. sales agent incurred sales-related expensesthat were compensated for when MMZ paid sales commissions to the agent. Accordingly, thepetitioners urge the Department to deduct the commissions from U.S. price to prevent MMZ fromunfairly spending funds in marketing and selling products in the United States.

The petitioners also argue that the SAA and the legislative history of the 1921 Antidumping Actindicate that Congress intended that the sales involving the expenses listed in section 772(d) of the Actbe classified as CEP in order to allow for the deduction of these expenses. The petitioners note that theSAA states, “constructed export price is now calculated to be, as closely as possible, a pricecorresponding to an export price between non-affiliated exporters and importers.” See SAA at 823. Furthermore, the petitioners note that the CIT has held that the rationale for the adjustment forcommissions and selling expenses was described by the Senate Finance Committee Report No. 16,67th Cong., 1st Sess. at 12 (1921) when the Committee stated, “{i}n substance, the term ‘exporter’ssales price’ is defined in such manner as to make the price the net amount returned to the foreignexporter.” See Brother Industries, Ltd. v. United States, 540 F. Supp. 1341 (CIT 1982) (Brother).The CIT continued by stating, “...Congress made it plain that it did not want a comparison between aprice in the home market and a price in the United States market..., but rather between a price in thehome market and a price for export to the United States.” Id. In light of these requirements, thepetitioners contend that commissions should be deducted from U.S. price to approximate a net pricecorresponding as closely as possible to an EP between an unaffiliated exporter and importer.

The petitioners further contend that the CAFC has rejected the Department’s argument thatCEP sales are distinguished from EP sales by the party that sets the terms of sale. The petitioners notethat the Department stated in Malleable Pipe Fitting from the PRC that it “did not find an invoice from

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the agent to the U.S. customer, and there is no record evidence that the agent negotiated the salesterms.” See Petitioners’ Case Brief at 24 (citing to Certain Malleable Iron Pipe Fittings From thePeople’s Republic of China; Final Determination of Sales at Less Than Fair Value and CriticalCircumstances, 68 FR 61395 (October 28, 2003) (Malleable Pipe Fittings from the PRC)). However,the petitioners claim that the CAFC rejected, in AK Steel, the argument that CEP sales aredistinguished from EP sales based on which party set the terms of sale, when it stated, “{i}f Congresshad intended the EP versus CEP distinction to be made based on which party set the terms of the dealor on the relative importance of each party’s role, it would not have written the statute to distinguishbetween the two categories based on the location where the sale was made and the affiliation of theparty that made the sale.” Id. at 25 (citing to AK Steel, 226 F. 3d at 1373). The petitioners concludethat it is sufficient, under section 772(b) of the Act, for a finding that transactions are CEP sales that theaffiliate or agent of the producer or exporter is engaged in selling or other economic activities related tothe subject merchandise in the United States. In the instant case, the petitioners claim that the U.S.selling agent sold the subject merchandise for the account of the producer MMZ for which it was paid acommission. Since this satisfies the statutory requirements, the Department must classify these sales asCEP transactions and deduct the commissions paid by MMZ from the starting price.

In rebuttal, MMZ argues that the particular circumstances surrounding the small number of salesin question support the finding that the sales are indeed EP sales, and that the deduction of commissionsis unwarranted. Specifically, MMZ contends that the agreement for the sales in question was madebetween itself and the unaffiliated U.S. customer, prior to the date of importation. MMZ asserts thatthis is the definition of an EP sale. According to MMZ, a CEP sale normally involves a sale or resaleby an affiliated company in the United States, normally after the date of importation into the UnitedStates. CEP sales do not apply to circumstances in which the first sale to an unaffiliated party isbetween the exporter and an unaffiliated U.S. importer and a commission is paid to an unaffiliated agentin the United States. MMZ further argues that commissioned agents generally do not make sales “forthe account of” the seller because commissioned agents do not take title of the merchandise. Only theseller itself, or an affiliate of the seller which takes title to the goods, is in a position to do so.

MMZ also distinguishes between the commissioned sales in question and consignment sales. Specifically, MMZ acknowledges that consignment sellers may not have title to the merchandise, butconsignment sellers locate buyers, negotiate the terms of sale, and actually invoice the sale to the firstpurchaser. The producer and title-holder, in such cases, may have no contact at all with the purchaser. According to MMZ, the sales in question are not consignment sales and do not involve such activitiesby the unaffiliated sales agent.

MMZ argues that while AK Steel and NSK stand for the proposition that someone whotransfers ownership to an unrelated party for consideration is involved in a sale, the agent who receivedthe commission for the sales in question was not empowered to take such action. Moreover, MMZargues that AK Steel supports the classification of the sales in question as EP because the Court stated

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that EP sales are those in which the producer or exporter sells directly to the U.S. purchaser. UnderAK Steel, MMZ argues that sales between the foreign exporter and the unaffiliated United Statespurchaser are clearly EP, not CEP, because of the nature of the relationship between the foreignexporter and the United States importer. MMZ asserts that, according to AK Steel, the criticaldistinction between an EP and a CEP sale is the location of where the sale was made. For a sale to bea CEP sale, the first sale must be made “in the United States.” MMZ quotes AK Steel stating that,“{t}hus, if ‘outside the United States’ refers to the sale .. One of the parties to the sale or the executionof the contract must also be ‘outside the United States’ for an EP classification to be proper.” SeeMMZ’s Rebuttal Brief (citing AK Steel, 226 F. 3d at 1369-1370). Unlike AK Steel, MMZ contendsthat the contract upon which the sales were made in this case was not executed between twocompanies domiciled in the United States. Rather, both the contract and the invoice to the firstunaffiliated purchaser in the United States were executed by MMZ. Since one party to the sale or theexecution of the contract was located “outside the United States,” MMZ argues that the sale is properlyconsidered an EP sale. MMZ concluded by stating that while commissions incurred in the UnitedStates by an affiliated U.S. reseller or other entity should be deducted from the CEP pursuant to section772(d) of the Act, this does not mean that the existence of a commission payment, by itself, cantransform an EP sale into a CEP sale.

Department’s Position:

We agree with MMZ that the sales in question are EP sales. Because the record indicates thatall of the principal selling activities were performed outside of the United States, the sales in questionare properly classified as EP sales. While, in some circumstances, a CEP sale may take place prior tothe date of importation, sections 772(a) and (b) of the Act indicate that the location of the U.S. sale isthe significant factor in determining whether the sale is an EP or CEP sale. See AK Steel, 226 F. 3d at1371-1372.

Contrary to the petitioners’ assertion, the particular facts surrounding the transactions inquestion demonstrate that the sales were made outside of the United States. Record evidence showsthat the essential selling activities for the sales in question were performed by MMZ, rather than theunaffiliated U.S. commissioned sales agent. Specifically, as MMZ correctly notes in its rebuttal brief,sales documents on the record of this investigation show that the terms of sale for the transactions inquestion were made between the unaffiliated U.S. purchaser and MMZ prior to the date of importationfrom Turkey. See MMZ’s Rebuttal Brief at 16; see also, Memorandum to the File from DrewJackson, International Trade Compliance Analyst, “Light-Walled Rectangular Pipe and Tube fromTurkey, Analysis of Certain U.S. Sales for Involving a Commissioned U.S. Sales Agent” (U.S. SalesMemorandum), which is dated concurrently with this memorandum. Therefore, in light of the recordevidence, we must consider these transactions as sales between MMZ and the unaffiliated customer,which occurred outside of the United States. Furthermore, the Department notes that the petitioners’allegation that the U.S. sales agent incurred specific sales-related expenses is not supported by any

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citation of record evidence.

The Department disagrees with the petitioners’ contention that the phrase “for the account of”compels treatment of the sales in question as CEP sales. The petitioners correctly state that theDepartment has found that the phrase “for the account of the producer or exporter” may refer toconsignment sales. See Malleable Pipe Fittings from the PRC, and accompanying Issues andDecisions Memorandum at Comment 15. Importantly, however, the Department notes that it declinedto classify the sales at issue in Malleable Pipe Fittings from the PRC as CEP sales because they werenot consignment sales. However, the Department disagrees with the petitioners’ contention that theunaffiliated sales agent in question acted “for the account of” MMZ because the record shows thatMMZ performed all of the principal selling functions associated with the transaction, while the U.S.commissioned sales agent was minimally involved in the sale. See U.S. Sales Memorandum.

Finally, while the petitioners correctly state that the CEP sales are not distinguished from EPsales by the party that sets the terms of sale, the location in which the sales in question were made andthe relationship of the buyer and seller support the classification of these sales as EP sales. While theAK Steel court found that the party that set the terms of the sale and the relative importance of eachparty’s role had no bearing on the classification of sales as either EP or CEP sales, it did further state,“the location where the sale was made and the affiliation of the parties that made the sale” was the basisfor distinguishing between the two types of sales. As noted above, the sales in question were madeoutside of the United States by MMZ to the unaffiliated U.S. customer. Accordingly, pursuant tosection 772(b) of the Act, the sales in question meet the statutory definition of EP sales.

Therefore, for the final determination, we have not reclassified the sales in question as CEPsales, and accordingly, continue to apply the EP methodology for calculating the dumping margin for thesales in question.

Comment 5: Whether the Department of Commerce Should Collapse MMZ andCompany A for Purposes of Calculating MMZ’s Coil Cost

MMZ argues that the Department should collapse MMZ and Company A, which is an affiliatedcompany from which MMZ purchases steel coil and through which it sells subject merchandise tounaffiliated U.S. customers, for the purposes of calculating MMZ’s coil cost. According to MMZ, thenature of the relationship between MMZ and Company A, which is business proprietary, justifiescollapsing the two companies or treating them as a single entity for the purposes of calculating MMZ’sCOP. Moreover, MMZ contends that Department precedent exists for collapsing a foreignmanufacturer and its sales and purchasing affiliate. See MMZ’s July 7, 2004, submission to theDepartment (MMZ’s Case Brief) at 8 (citing Certain Welded Carbon Steel Pipes and Tubes fromThailand: Final Results of Antidumping Administrative Review, 61 FR 56515 (November 1, 1996)(Pipes and Tubes from Thailand)). MMZ also claims that the Department’s finding at verificationjustifies collapsing these two companies.

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In rebuttal, the petitioners argue that collapsing MMZ and Company A for the purposes ofcalculating its coil cost is not warranted because the companies’ relationship does not merit suchtreatment. The petitioners note that Company A is not a division or factory within MMZ that suppliesraw materials to MMZ. Rather, Company A is a separate corporate entity that purchases rawmaterials and sells them to MMZ. The petitioners further note that MMZ and Company A’s accountswere not combined to determine MMZ’s COP.

The petitioners state that the Department has declined to collapse a producer and its affiliatedraw material supplier after evaluating whether affiliated party transactions for major inputs occur atprices that are arm’s-length in nature and above the supplier’s COP. See Petitioners’ July 12, 2004,submission to the Department (Petitioners’ Rebuttal Brief at 7) (citing Large Newspaper PrintingPresses and Components Thereof, Whether Assembled or Unassembled From Germany, Notice ofFinal Determination of Sales at Less Than Fair Value, 61 FR 38166 (July 23, 1996)). The petitionerscontend that the purpose of the major input rule is to prevent the understatement of input costs when theproducer purchases inputs from an affiliate, by comparing the transfer price with prices at which theproduct is purchased from unaffiliated parties. Citing a proprietary section of the Department’sverification findings, the petitioners argue that the Department was correct in applying the major inputrule to MMZ’s purchases of steel coils from Company A.

The petitioners disagree with MMZ’s statement that “the problem with comparing the priceMMZ pays to {Company A} for imported coil with the price that MMZ pays to home market suppliersis that the home market price for coil is considerably higher than the imported coil price.” Thepetitioners note that the COP is intended to identify the cost of producing the subject merchandise soldin the home market. In the instant case, the petitioners note that the subject merchandise sold in thehome market was produced entirely from domestically produced coil. The Department’s comparisonof the transfer price of imported steel coil with the price of domestic coil is therefore appropriate for thepurpose of determining the coil cost for the COP. The petitioners urge the Department to continue totreat MMZ and Company A as separate entities and apply the major input rule for the purpose ofcalculating MMZ’s coil costs for the final determination.

Department’s Position:

We agree with the petitioners that MMZ and Company A should not be collapsed. Neither theroles of MMZ and its affiliate, Company A, nor the Department’s findings at verification support adecision that these two companies should be collapsed for the purpose of calculating MMZ’s coil cost.

As an initial matter, the Department finds that collapsing MMZ and Company A into a singleentity is not warranted in this case based on our practice of collapsing affiliated producers; Company Ais not a producer of subject merchandise. 19 C.F.R. § 351.401(f) states that the Department will treattwo or more affiliated producers as a single entity where: (1) those producers have production facilitiesfor similar or identical products that would not require substantial retooling of either facility in order to

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restructure manufacturing priorities; and (2) where there is a significant potential for the manipulation ofprice or production. In this case, Company A is an affiliate through which MMZ purchases steel coiland sells subject merchandise to unaffiliated U.S. customers. It is undisputed that this affiliate is not aproducer of subject merchandise or any other product. For this reason, the Department’s regulationsdo not apply to the question of collapsing MMZ and Company A into a single entity for purposes of thisantidumping investigation.

MMZ’s argument that the Department should treat Company A and MMZ as a single entityrests on Company A’s particular corporate structure, the details of which are business proprietaryinformation. We disagree that this corporate structure compels the Department to treat MMZ andCompany A as a single entity. Regardless of Company A’s corporate structure, it is undisputed thatCompany A is affiliated with MMZ and is a legal entity separate and distinct from MMZ. When arespondent purchases a major input from an affiliated supplier, section 773(f)(3) of the Act directs theDepartment to evaluate whether affiliated party transactions for major inputs occur at prices that arearm’s-length in nature and above the supplier’s COP. Since MMZ purchased a major input from anaffiliated supplier, the Department, in the Preliminary Determination, applied the major input rule toMMZ’s purchases of coils from Company A. We found that in certain months the affiliated transferprices were lower than market prices. Accordingly, where the transfer price was lower than marketprice, we adjusted the raw material cost upward to reflect the market price. See Memorandum fromMargaret M. Pusey, Case Accountant, to Neal M. Halper, Director, Office of Accounting, “Cost ofProduction and Constructed Value Calculation Adjustments for the Preliminary Determination – MMZOnur Boru Profil Uretim Sanayi ve Ticaret A.S.,” dated April 6, 2004 (Preliminary Cost CalculationMemorandum). Moreover, the Department confirmed during verification that our preliminary findingthat certain transfer prices were below market prices was correct. See Cost Verification Report atExhibit 26. Having determined that certain sales of steel coil from Company A to MMZ do not fairlyreflect the amount usually reflected in sales of coil under consideration in the market underconsideration, the Department appropriately disregarded these transactions in the PreliminaryDetermination, pursuant to section 773(f)(2) of the Act.

For the foregoing reasons, the Department has continued to treat MMZ and Company A asseparate entities for the purposes of calculating MMZ’s coil cost.

Comment 6: Whether the Department Should Find that the Transfer Price BetweenCompany A and MMZ Was Above the Market Price

MMZ claims that if the Department does not collapse MMZ and its affiliated supplier forpurposes of computing cost, then it should find that the transfer price for coils was above the marketprice. In the Preliminary Determination, MMZ argues, the Department incorrectly compared MMZ’stransfer price with Company A to its purchases price when buying steel coils from domestic unaffiliatedsuppliers. MMZ argues that the transfer price it pays to Company A includes an amount for Company

3 We note that in its briefs MMZ has claimed proprietary treatment for the fact that the transfer priceincludes an amount for profit. However, this fact is available in the public domain (see Cost Verification Report page22). Therefore, we are not treating this as a proprietary item.

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A’s profit3 and therefore the transfer price is higher than the market price between Company A and theforeign unaffiliated supplier. MMZ claims that, for the final determination, the Department shouldchange its methodology and instead compare the transfer price between MMZ and Company A to thepurchase price Company A paid for the coils. MMZ argues that all of the coils it imported fromCompany A were entered under Turkey’s duty drawback program and, since they are duty exclusive,are not comparable to the ones it purchased from domestic unaffiliated suppliers because the domesticprice of coils is influenced by Turkey’s tariff regime on coils. MMZ contends that the domesticunaffiliated price of coils is higher than the price paid to Company A because the high tariff on importedcoils allows domestic producers to increase the domestic price of coils.

Citing the Notice of Final Determination of Sales at Less Than Fair Value: Large NewspaperPrinting Presses and Components Thereof, Whether Assembled or Unassembled from Germany, 61FR 38166 (July 23, 1996) (LNPPs from Germany), the petitioners claim that the Department shouldnot collapse the costs of the affiliated raw material supplier with those of MMZ. The petitioners arguethat the Department’s comparison of the transfer price of imported coil with the price of domestic coil isappropriate because the COP is intended to identify the cost of producing the subject merchandise soldin the home market and because the subject merchandise sold in the home market was producedentirely from domestically supplied coils.

Department’s Position:

We disagree with the respondent. In accordance with section 773(f)(2) of the Act, theDepartment must compare the affiliated transaction prices with prices “of merchandise underconsideration in the market under consideration.” Emphasis added. This section of the Act instructsthe Department to compare MMZ’s transfer price from Company A with a market price from Turkey. We disagree that the Department should accept that the transfer price reflects a market price because itincludes an amount for Company A’s profit. Accordingly, we compared MMZ’s purchase prices fromunaffiliated domestic suppliers to the transfer price with Company A, which we increased to include theduty cost. Despite the claim that the transfer price included an amount for Company A’s profit, ourcomparison showed that in certain months the transfer price was below the market price from domesticunaffiliated suppliers.

We disagree that the Department cannot compare the transfer prices to the domesticunaffiliated prices of coil simply because the domestically supplied coils are not imported. There is noprovision in the statute that requires the Department to make sure that the products are produced in thesame market when comparing the transfer price to market price. The steel coils are the same productregardless of where they are sourced. Therefore, for the final determination, we continue to compare

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MMZ’s transfer price to the market price of coils sourced from unaffiliated domestic suppliers. Wehave also continued to adjust the reported material costs to reflect the higher of the market price or thetransfer price. In addition, because Company A is providing steel coils as well as services related tothe acquisition of the coils, we considered that the selling, general, and administrative expenses ofCompany A must be included in the transfer price. See Notice of Final Determination of Sales at LessThan Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea, 64 FR73196, 73208 (December 29, 1999).

Comment 7: Whether the Upward Adjustment for Imported Coil Purchased ThroughCompany A to the Price Paid to Home Market Suppliers in EffectDouble-Counts the Duty-Drawback Adjustment to Cost of Productionand Constructed Value

MMZ suggests that the Department should adjust the imported coil costs for the higher of thepurchase price of domestic coils or duty drawback for the final determination. MMZ contends thatincreasing the affiliated supplier cost by the excluded duty drawback and also increasing the importedcoil costs to reflect the higher market price required by section 773(f)(2) of the Act results in doublecounting because these adjustments are addressing the same difference. According to MMZ, thedomestic price for steel coils is higher then the offshore price due to the high Turkish import duty on thisproduct.

Petitioners did not comment on this issue.

Department’s Position:

The Department disagrees with MMZ that the duty drawback adjustment was double countedin the Preliminary Determination. In order to calculate the adjustment to the cost of raw materials forthe import duties, we divided the cost of imported raw materials by the total raw material costs from allsources, and then multiplied this ratio by the tariff rate applied by the GOT to imports of steel coils. Inother words, we added the duty drawback to only the imported raw material costs. For the majorinput adjustment, we first adjusted the transfer price of the steel coil from the affiliated supplier toinclude the duty drawback before making the comparison to the unaffiliated market price. We thenapplied the difference between the market price and the duty-inclusive transfer price in the monthswhen the market price was higher. As such, we adjusted only selected months of the imported rawmaterials by the additional percentage not the difference attributable to the duty. Section 772(c)(1)(B)of the Act requires the Department to increase the EP or CEP by the amount of duty drawback, (i.e.,any import duties imposed by the country of exportation on imported inputs which have been rebated,or which have not been collected, by reason of the exportation of the subject merchandise to the UnitedStates). The import duties incurred on imported coils were not included in the reported costs and,therefore, we must increase the transfer price to include the duty drawback.

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Comment 8: Whether the Department Should Exclude Foreign Exchange LossesIncurred on Payables from MMZ’s Computed Financial Expense

MMZ contends that the Department double-counted the step-up in raw material costs requiredby its replacement cost methodology through including the foreign exchange losses (i.e., kur farki inTurkish) incurred on accounts payable in the Preliminary Determination financial expense calculation. MMZ claims that the majority of the foreign exchange losses it incurred relate to purchases of coil, zinc,machine oil, zinc chemicals, and fuel oil - inputs which were valued at replacement costs. In support ofits position, MMZ cites Notice of Final Determination of Sales at Less Than Fair Value; Certain Cold-Rolled Carbon Steel Flat Products From Turkey, 67 FR 62126 (October 3, 2002) (Cold-Rolled fromTurkey).

MMZ again cites Cold-Rolled from Turkey, claiming that its letter of credit expenses andimport financial expenses relate to delays in payments for imported raw materials and are equivalent tothe price variation charges on current month raw material purchases which are paid for in a futuremonth (i.e., vade farki in Turkish) that the Department excludes from the cost calculation.

MMZ contends the income from investments which it used as an offset to financial expenses isnot dividend income as claimed by the petitioners but is interest income from bank accounts. MMZnotes that its detailed balance sheet shows that during the POI, MMZ did not hold any stocks in anyother corporations. Therefore, MMZ continues to claim the interest income offset should be allowedfor the final determination.

In rebuttal, the petitioners state that the Department correctly included the net foreign exchangegains and losses in the financial expense calculation for the Preliminary Determination. In addition, thepetitioners assert that the interest expense and charges on letters of credit, and the import financecharges should be included in the financial expense calculation because they relate to the generaloperation of MMZ. The petitioners argue that MMZ’s claimed offset to interest expense for income oninvestments should be excluded.

The petitioners refute MMZ’s claim that its foreign exchange losses on accounts payable shouldnot be included in financial expenses citing to Honey from Argentina: Final Results of AntidumpingAdministrative Review, 69 FR 30283 (May 27, 2004) and the accompanying Issues and DecisionMemorandum at comment 6 that notes the Department’s current practice is to include the net foreignexchange gains and losses in the financial expense calculation. The petitioners further contend thatMMZ has not demonstrated that its foreign exchange gains and losses relate primarily to purchases ofraw materials.

Department’s Position:

We agree with the petitioners that the net foreign exchange gains and losses (i.e., inclusive of

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the kur farki) should be included in the financial expense calculation for MMZ. The use of thereplacement cost methodology to value raw materials in cases involving high inflation economies and theinclusion of exchange rate gains and losses are two distinct and separate issues. However, we agreewith MMZ that the income on investments should be allowed as an offset to financial expenses becauseit represents interest on short-term bank accounts even though the title of the account implies that it maybe dividend income from stock investments.

In the cases cited by MMZ, the Department excluded the kur farki (i.e., exchange gains andlosses on accounts payable) from the net interest expense calculation. However, after further evaluationand analysis we have determined that the economic factors of this case are different then Certain SteelConcrete Reinforced Bars From Turkey; Final Results of Antidumping Duty Administrative Review, 66FR 56274 (November 7, 2001) and the accompanying Issues and Decision Memorandum atComments 18 and 27 with respect to exchange rate gains and losses. Although inflation may accountfor a portion of the change in the exchange rate between Turkish lira and U.S. dollars over time, it is notthe only factor. As articulated in Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products FromBrazil; Final Determination of Sales at Less Than Fair Value, 64 FR 38756 (July 19, 1999) and CertainCold-Rolled and Corrosion Resistant Carbon Steel Flat Products From Korea; Final Results ofAntidumping Duty Administrative Reviews, 64 FR 12927 (March 16, 1999), the Department is notobligated to accept methodology simply because it was accepted in a prior review.

In Turkey, companies record the exchange gains and losses on imported raw materialpurchases (i.e., kur farki) separately from the increase in the amount of local currency needed tosatisfy a foreign denominated debt which is caused by the devaluation of the local currency (i.e., thevade farki). The difference in exchange rates between the Turkish lire and foreign currencies gives riseto the exchange gains and losses (i.e., the kur farki) while the difference in the inflation rate from monthto month gives rise to the vade farki. Both of these costs must be accounted for in the Department’sdumping analysis. The Department’s replacement cost methodology for raw materials accounts for thechange in inflation from month to month (i.e. the vade farki) incurred and recorded by MMZ. However, the replacement cost methodology does not account for the change in exchange rates (i.e.,the kur farki). Because the exchange rate difference (i.e., the kur farki) is not accounted for in theDepartment’s replacement cost methodology it is necessary to include these costs in the financialexpense calculation.

When an economy experiences high inflation, the value of the country’s currency is rapidlydeteriorating, resulting in each unit of local currency having substantially less real value as time passes. Consequently, a greater nominal amount of the currency is required to purchase a product at a laterpoint in time than was needed at an earlier point in time. Even if real costs remain constant, because ofthe decline in the currency’s value, the price of the inputs used to produce the product underinvestigation would be expressed at a higher nominal value at the end of the POI than at the beginning. Similarly, the price to home market customers purchasing the same domestic like product will beexpressed at a higher nominal value at the end of the POI than at the beginning of the POI. See Import

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Administration Antidumping Manual, Chapter 8 (January 22, 1998), which defines high inflation and theadjustments necessary to value raw material costs.

To assure that we are appropriately matching the prices and the costs, we make ourprice-to-price, price-to-CV, and price-to-COP comparisons over shorter time periods so that the highinflation experienced in the economy will not distort the dumping analysis. For example, when inflationexceeds 25 percent in a year, we limit our averaging of exporting country sales to sales that occurwithin the same month as the U.S. sale to which they will be compared. For COP and CV, wecompute a monthly cost based on the nominal monthly amounts incurred and index them for inflation tothe end of the POI in order to calculate an annual average cost in a constant currency. We calculatethe average cost for the POI and deflate the average cost to each month in which a sale occurred. Thus, home market (or third country) sales, U.S. sales, and costs are stated in a currency ofapproximately the same value when they are compared to each other.

When a company makes purchases which are denominated in a foreign currency and pays for itat a later date (i.e., accounts payable) it incurs either a foreign exchange gain or loss on the payable. Foreign exchange rate gains and losses arise due to the differences between the foreign exchange ratesat the time of acquisition (i.e., recorded in the company’s accounting records as a payable in the homemarket currency at the foreign exchange rate on the date of the purchase) and the time of payment (i.e.,when payment is made by the company for the purchase based on the terms of the invoice). Becausethere is a period of time from recording the invoice until the payment is made, a foreign exchangedifference will occur.

The Department’s high inflation methodology for raw materials accounts for the increase in localcurrency needed to satisfy a debt (i.e., relates to inventory turnover) but it does not account for theforeign exchange differences incurred because of delays in payment of the foreign denominatedpayables (i.e., relates to accounts payable turnover). Therefore, the Department included the netforeign exchange rate gains and losses (inclusive of kur farki) in the financial expense ratio for the finaldetermination.

The Department disagrees with MMZ that the interest expense and charges on letters of creditare comparable to the vade farki and should be excluded in the financial expense calculation. Vadefarki arises due to the change in inflation from month to month. Company officials explained atverification that the particular account in question included letter of credit interest charges and servicecharges related to the purchase of raw materials (see, Verification Report on the Cost of Productionand Constructed Value Data Submitted by MMZ Onur Boru Profil Uretim Sanayi ve Ticaret A.S.,Section VI.B., dated June 30, 2004). MMZ did not post these expenses to a vade farki account. These are costs to obtain and maintain credit and are appropriately classified as financial expenses forthe dumping analysis.

On the other hand, the Department agrees with MMZ that the income on investments should be

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allowed as an offset to financial expenses because it is interest on short-term bank accounts eventhough the title of the account implies that it may be dividend income from stock investments. We aretherefore treating interest income in this manner for purpose of our calculations.

Comment 9: Whether the Department Should Adjust MMZ’s Reported Costs toCorrect for the Overstatement in MMZ’s Raw Material CostDiscovered During Verification

MMZ contends that, for the final determination, the Department should adjust the reportedcosts for the overstatement found during verification. Additionally, MMZ asserts the Department canadjust for the overstatement in first quality merchandise variable overhead (VOH), fixed overhead(FOH), and direct labor (DIRMAT) without having the throughput rates for each product.

The petitioner did not comment on this issue.

Department’s Position:

The Department agrees with MMZ and we have adjusted the reported costs for theoverstatement.

Part II – Ozborsan/Onur, Guven, and Ozdemir

Comment 10: Whether The Department Erred In Its Decision To Collapse Ozborsan/Onur,Guven, and Ozdemir Into A Single Entity

Ozborsan and its sister company, Onur Metal (hereafter, Ozborsan/Onur), argue that theDepartment erred in its collapsing analysis when it preliminarily determined to collapse Ozborsan/Onur,Guven and Ozdemir into a single entity. See Memorandum from Thomas F. Futtner, Acting OfficeDirector, to Holly A. Kuga, Acting Deputy Assistant Secretary, “Whether to Collapse Certain TurkishPipe and Tube Producers Into A Single Entity,” dated April 6, 2004 (Collapsing Memorandum). Specifically, Ozborsan/Onur argues that the Department erred in its finding that there is a significantpotential for manipulation of price or production.

Ozborsan/Onur notes that the test for collapsing requires three separate findings: (1) that thecompanies at issue are affiliated; (2) that the companies have production facilities for similar or identicalproducts that would not require substantial retooling of either facility in order to restructuremanufacturing priorities; and (3) that the companies are sufficiently intertwined as to permit thesignificant possibility of price or production manipulation. See Ozborsan/Onur’s July 7, 2004, CaseBrief (Ozborsan/Onur Case Brief) at 12 (citing Allied Tube and Conduit Corp. v. United States, 127 F.Supp. 2d 207, 215 (CIT 2000) (Allied Tube)).

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Ozborsan/Onur states that it reported to the Department that the owner of Ozborsan has twobrothers, one who owns Guven and the other who owns Ozdemir, and that all three companiesproduce pipe and tube in Turkey. Ozborsan/Onur claims that the Department incorrectly foundOzborsan/Onur, Guven, and Ozdemir affiliated pursuant to section 771(33)(A) of the Act, whichprovides that members of a family are affiliated, and section 771(33)(F) of the Act, which provides thatparties that share direct or indirect control are affiliated. According to Ozborsan/Onur, there is nofactual reason to find that the three companies, which operate separately and independent of oneanother, are commonly controlled by the family that holds shares in them. Ozborsan/Onur argues thateach brother controls only the company in which he holds shares because there is no cross ownershipbetween the brothers in each other’s companies.

Ozborsan/Onur argues that the Department’s determination that all three companies areaffiliated via a family relationship relies on Ferro Union. See Ozborsan/Onur’s Case Brief at 5 (citingFerro Union v. United States, 44 F. Supp. 2d 1310 (CIT 1999) (Ferro Union)). However,Ozborsan/Onur contends that the CIT’s discussion of family groupings in Ferro Union is not dispositiveon the issue of collapsing because the Court did not discuss (1) whether the producers had productionfacilities for similar or identical products or (2) whether there was the significant potential for thepossibility of price or production manipulation. While Ozborsan/Onur does not dispute that all threecompanies have comparable production facilities for the production of similar products, Ozborsan/Onurargues that there is insufficient evidence to support a finding of price or production manipulation. SeeOzborsan/Onur’s Case Brief at 5.

Citing the Department’s three-pronged test as explained by the CIT in New World Pasta,Ozborsan/Onur argues that the Department’s alleged conclusion that the three companies haveintertwined operations is not supported by record evidence. See id. at 6 (citing New World Pasta Co.v. United States, No. 03-00105, 2004 WL 392881 (CIT March 2004) (New World Pasta)). Id. Ozborsan/Onur contends that the intertwined operations analysis examines three factors: (1) the levelof common ownership; (2) the extent to which managerial employees or board members of one firm siton the board of directors of an affiliated firm; and (3) whether the operations are intertwined, such asthrough the sharing of sales information, involvement in production and pricing decisions, the sharing offacilities or employees, or significant transaction between affiliated producers. Ozborsan/Onur assertsthat the Department impermissibly relied on its finding of affiliation by common family control to supportits determination that the three companies should be collapsed.

With respect to common ownership, Ozborsan/Onur claims that the Department’s basis forfinding that this criterion is satisfied, because of the family’s significant ownership in the threecompanies, is nothing more than a restatement of the Department’s basis for finding common controland affiliation. According to Ozborsan/Onur, the CIT held in New World Pasta that “the evidencerequired to justify a collapsing determination goes beyond that which is necessary to find commoncontrol.” See Ozborsan/Onur’s Case Brief at 7 (citing to New World Pasta at 222). According to the

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CIT, the Department, in its collapsing memorandum in the investigation underlying New World Pasta,stated, “even were the factor of common ownership satisfied, the two parties should not be collapsedbecause common ownership would be based entirely on the finding of affiliation by common control.” Ozborsan/Onur asserts that under such circumstances, which are the same that exist in the instantinvestigation, the CIT concluded that “even were the subfactor of common ownership satisfied, it alonecould not justify collapse; Commerce would still need to review the other two subfactors.” Thus,Ozborsan/Onur concludes that the Department’s decision to collapse the three companies is notsupported by any finding of common ownership.

Regarding the second subfactor, the extent to which managerial employees or directors of onefirm sit on the board of directors of an affiliated firm, Ozborsan/Onur argues that the Departmentincorrectly relied on its affiliation analysis of common control to claim that this subfactor is satisfied. According to Ozborsan/Onur, this approach ignores the intent of the language of this part of theregulations which focuses on whether individuals in one firm hold positions or influence in another firm. Ozborsan/Onur notes that there is no overlap of managerial employees at the three companies andthere are no shareholders in common between the three companies. In New World Pasta, where theaffiliation was based on the fact that major shareholders in both companies were family members, theDepartment found for purposes of its collapsing analysis that the two affiliated companies had nointerlocking board members or common shareholders and thus, the second subfactor was not satisfied. Since the facts of the instant record are similar to those in New World Pasta, Ozborsan/Onurconcludes that the Department cannot find that the second subfactor is satisfied because these threecompanies have no overlapping employees or shareholders.

The third subfactor is whether the operations of the affiliated companies are closely intertwined,such as through sharing sales information, involvement in production and pricing decisions, sharingfacilities or employees, or significant transactions between the affiliated producers. In the PreliminaryDetermination, Ozborsan/Onur notes that even though the Department found no evidence thatOzborsan/Onur and the other two companies share marketing or sales information, production facilitiesor employees, or that there were any commercial transactions between Ozborsan/Onur and eitherGuven or Ozdemir, the Department nevertheless decided to collapse the three companies into a singleentity. Despite the lack of commercial transactions, Ozborsan/Onur claims that the Department basedits decision that there exists a significant potential for price or production manipulation on the fact thatOzborsan/Onur occasionally swaps coils and transportation services with one of the other twocompanies. According to Ozborsan/Onur, these swaps occurred only in a few instances and wereeven exchanges of inputs or services. Ozborsan/Onur argues that these swaps were not “significanttransactions,” and there was no sharing of sales data or any other information that could have permittedprice or production manipulation by these companies. Ozborsan/Onur concludes that there is norecord support for the Department’s conclusion that Ozborsan/Onur’s operations are intertwined withGuven and/or Ozdemir.

Ozborsan/Onur contends that the CIT has held that “Commerce does not collapse related

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parties except where there is a strong possibility of price manipulation.” See Ozborsan/Onur’s CaseBrief at 11 (citing to FAG Kugelfischer Georg Schafer KGaA, et. al., v. United States, 932 F. Supp.315, 323 (CIT 1996)). Furthermore, Ozborsan/Onur states that the Department has itself argued inAllied Tube that “both Commerce’s regulations and this Court’s precedent precludes an affirmativecollapsing determination unless the potential for price or production manipulation is significant.” Id. Inthe instant case, Ozborsan/Onur argues that none of the factors considered by the Department suggestthe slightest possibility, let alone the “significant potential,” that Ozborasan/Onur could or wouldmanipulate prices or production in coordination with Guven or Ozdemir. The Department cannotassume or infer – simply on the basis of a family relationship among owners of separate and discretecompanies – that there is the potential for manipulation of prices or production. Ozborsan/Onur arguesthat if the mere fact of a family relationship was sufficient to collapse two or more companies, theDepartment would not be required to consider any other factors.

In rebuttal to the arguments made by Ozborsan/Onur, the petitioners contend that theDepartment acted reasonably and within its statutory authority in its decision to collapse the threecompanies into a single entity. According to the petitioner, the Department conducted a thoroughinquiry and acquired all obtainable or accessible information on the necessary factors for its collapsinganalysis. In light of the information it gathered, the petitioners claim that the Department came to theproper conclusion, that collapsing Ozborsan/Onur, Guven, and Ozdemir into a single entity waswarranted in this case.

The petitioners also argue that the record evidence supports the Department’s decision tocollapse the three companies. Specifically, the petitioners claim that the three respondents haveproduction facilities that are equipped to manufacture similar or identical products that would notrequire substantial retooling of their facilities in order to change manufacturing priorities. Regarding theDepartment’s decision that the three companies are affiliated, the petitioners note that section771(33)(A) of the Act provides that affiliation occurs within a family, between its members, blood ormarriage relations, and their descendants. Given that the owners and operators of these companies arebrothers, and that their level of ownership is significant, the petitioners argue that the Departmentcorrectly found these companies to be affiliated. The petitioners continue by noting that there existsmanagement overlap between the three companies because family members hold senior managementpositions in each company. The petitioners also observe that although the Department’s collapsinganalysis also includes several other factors, the Department is not statutorily mandated to consider all ofthem when making its determination. Citing proprietary information contained in the CollapsingMemorandum, the petitioner identifies the specific evidence cited by the Department as the basis of itsdetermination to collapse these companies. In sum, the petitioner argues that the Department wascorrect in its conclusion to collapse based upon the record evidence that the family controls the threecompanies, transactions took place between the companies, and that they share similar productionfacilities.

In rebuttal to the petitioners’ arguments, Ozborsan/Onur argues that past cases, including those

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cited by the Department in the Collapsing Memorandum, demonstrate that the Department incorrectlycollapsed the three companies in the instant investigation. Ozborsan/Onur contends that, in CollatedRoofing Nails, the Department based its decision to collapse two producers into a single entity becausethe companies were managed by the same individual, shared certain employees, and transferred salesorders to each other for completion. See Ozborsan/Onur’s Rebuttal Brief at 4 (citing Notice of FinalDetermination of Sales at Less Than Fair Value: Collated Roofing Nails from Taiwan, 62 FR 51,427(October 1992) (Collated Roofing Nails from Taiwan)). Furthermore, in Steel Pipes and Tubes fromThailand, Ozborsan/Onur asserts that the Department did not collapse two Thai producers even thoughmembers of the family served on the board of directors and held management positions in eachcompany. In that case, Ozborsan/Onur observes that the Department concluded that the recordevidence did not support a finding of significant potential for manipulation of pricing or productionbecause it did not consider the finding of family “ownership and control, by itself, as a sufficient basis tocollapse these affiliates.” See Ozborsan/Onur’s Rebuttal Brief at 5 (citing Certain Welded CarbonSteel Pipes and Tubes from Thailand: Final Results of Antidumping Duty Administrative Review, 63FR 55578 (October 1998) (Steel Pipes and Tubes from Thailand)). The Department determined notto collapse the three companies, “consistent with the Department’s practice of not collapsing producerssolely on the basis of affiliation.” See Steel Pipes and Tubes from Thailand at 55583. In Stainless SteelWire Rod from India, the Department collapsed two producers because family members served oneach company’s board of directors, there was significant cross share holdings of stock in bothcompanies by certain family members, the administrative offices of the common corporate parentprovided each producer with “group-wide functions to include human resources, shipping, andcoordination of production decisions,” and one producer was the sole supplier of unfinished wire rodsto the other producer. See Ozborsan/Onur’s Rebuttal Brief at 8 (citing Antidumping DutyAdministrative Review of Stainless Steel Wire Rod from India: Collapsing of Viraj Alloys, Ltd., andVSL Wires, Ltd. (December 12, 2003), at 2). Lastly, in Rebar from Korea, Ozborsan/Onur arguesthat the Department’s collapsing analysis depended on the fact that both companies had seniormanagers that had previously managed the other company, both companies sold a small amount ofrebar to each other in the home market, and both companies used the same affiliated transportationcompany for certain home market sales. See Ozborsan/Onur’s Rebuttal Brief at 9 (citing Notice ofFinal Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars From theRepublic of Korea, 66 FR 33526 (June 22, 2001) (Rebar from Korea) and accompanying Issues andDecision Memorandum at Comment 1)).

After reviewing the facts surrounding past collapsing determinations, Ozboran/Onur concludesthat these past cases clearly establish that the Department incorrectly applied its collapsing analysis inthe instant investigation. In the past cases where the Department did collapse two or more producersinto a single entity there was record evidence indicating that the producers in question shared current orformer managers, had overlap in employees, sold each other’s subject merchandise or raw materials, orshared sales information. In the instant investigation, Ozborsan/Onur claims that the three companieshave none of the above-listed items. In fact, Ozborsan/Onur asserts that the Department’s collapsinganalysis in the instant investigation is based solely on the family relationship between these companies

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that serves as the basis for finding affiliation. Ozborsan/Onur maintains that affiliation alone is notsufficient to establish that independent companies should be collapsed and treated as a single entity. Asthere is no evidence to support the Department’s conclusion that Ozborsan/Onur’s operations areintertwined with those of Guven or Ozdemir, Ozborsan/Onur argues that the Department shouldreverse its decision for the final determination.

Department’s Position:

We agree with the petitioners that it is appropriate to collapse the three companies here. Whenconsidering whether to collapse two or more companies into a single entity for the purposes of anantidumping investigation or administrative review, 19 C.F.R. § 351.401(f) states that the Departmentwill treat two or more affiliated producers as a single entity where: (1) those producers haveproduction facilities for similar or identical products that would not require substantial retooling of eitherfacility in order to restructure manufacturing priorities; and (2) where there is a significant potential forthe manipulation of price or production. In identifying a significant potential for the manipulation of priceor production, the factors the Department may consider include: (A) the level of common ownership;(B) the extent to which managerial employees or board members of one firm sit on the board ofdirectors of an affiliated firm; and (C) whether operations are intertwined, such as through the sharing ofsales information, involvement in production and pricing decisions, the sharing of facilities or employees,or significant transactions between affiliated producers.

In examining these factors as they pertain to a significant potential for manipulation, we considerboth actual manipulation in the past and the possibility of future manipulation. See Preamble,Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27346 (May 19, 1997). Thepreamble underscores the importance of considering the possibility of future manipulation: “a standardbased on the potential for manipulation focuses on what may transpire in the future.” Id. We have,therefore, examined all three factors in light not only of actual manipulation during the POI but also withrespect to the possibility of future manipulation.

In our April 6, 2004, decision to collapse Ozborsan/Onur, Guven, and Ozdemir into a singleentity for the purposes of this investigation, we found that (1) Ozborsan/Onur, Guven, and Ozdemir areaffiliated; (2) a shift in production would not require substantial retooling (if any); and (3) there is asignificant potential for price or production manipulation due to, among other factors, evidence ofsignificant common ownership and management overlap by senior managers who (a) have a significantinfluence over the production and sales decisions of these companies and (b) belong to the same family. Based on this analysis, we found that the record evidence weighs in favor of collapsing Ozborsan/Onur,Guven, and Ozdemir for the purposes of this investigative determination.

We disagree with Ozborsan/Onur’s contention that members of the family in question do nothave the ability or incentive to coordinate their actions in order to direct Ozborsan/Onur, Guven, andOzdemir to act in concert with each other. It is undisputed that this family is the largest shareholder in

4 In the Collapsing Memorandum, the Department included an additional factor in our analysis of whetherthese companies have intertwined operations. In its second supplemental Section A questionnaire response, Guvenreported that it purchased galvanized pipes from a company with a name identical to one of the other two companiesat issue. A later submission by one of the other companies claimed that Guven was actually referring to anotherTurkish producer that is unaffiliated with any of the three companies at issue, but happens to have a similar name. For this reason, the Department has not included Guven’s purchase of galvanized pipes from this unaffiliatedcompany in our analysis for the final determination.

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all three companies. Each brother is the largest shareholder in his company. See the CollapsingMemorandum at 6 for a breakdown of the family’s ownership in each company, which is proprietaryinformation. Besides being the largest shareholders, the family also holds senior leadership positions atOzborsan/Onur, Guven, and Ozdemir.

Specifically, the family occupies significant positions both on the board of directors and insenior management at Guven, Ozborsan/Onur, and Ozdemir. For example, one brother is a member ofthe Board of Directors of Ozborsan and is identified as Ozborsan’s “Head of Company.” The secondbrother is the President of Guven and his son is the General Manager of Guven. Two of theresponsibilities performed by the son of the second brother are “strategic/economic planning” and“procurement/sourcing” services. See Collapsing Memorandum at 6. The president of Guven ispresumably the highest person of authority since Guven is a “Limited Company” and does not have aboard of directors. The third brother is the founder and Managing Director of Ozdemir. According toOzdemir, the third brother has “full authorization ... to establish prices, selling and general expenses andproduction costs.” See Collapsing Memorandum at 6. In addition, “{the third brother} has full controland is the decision-maker.” Id. at 6. As noted above, the Department can interpret a “family” as acontrol “person” for purposes of the Act and controlling business entities. In this context, the family inquestion is the “person” jointly managing Guven, Ozborsan/Onur, and Ozdemir. The fact that the familyis the largest shareholder in all three companies, combined with the fact that each brother holds seniorleadership positions in each company, clearly shows that the family has the ability and financial incentiveto coordinate their actions in order to direct Ozborsan/Onur, Guven, and Ozdemir to act in concertwith each other. As mentioned above, the Department is not required to find that the three companieshave acted in concert. Rather, the Department is concerned with the potential for the three companiesto act in concert or out of common interests.

Regarding the intertwining of operations, the Department found there were intertwinedtransactions between Guven, Ozborsan/Onur, and Ozdemir which resulted in: (a) a proprietarystatement concerning sales and purchases of hot-rolled and cold-rolled coils made by Ozborsan/Onur,(b) Ozborsan/Onur and one of the other companies swapped different sized steel coils when one of thecompanies was in need of a particular size of coil, (c) Ozborsan/Onur and one of the other companiesoccasionally used each other’s trucks for transporting finished products and/or raw materials to andfrom the port and their respective factories; (d) Guven sold a significant quantity of subject and non-subject tubes to one of the other companies; (e) one of the other companies sold a significant quantityof subject and non-subject tubes to Guven; and (f) Guven sold a significant quantity of hot-rolled coilsto one of the other companies.4 See Collapsing Memorandum at 7-9. We disagree with

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Ozborsan/Onur’s characterization of these intertwined operations as “minimal.”

In making a decision to collapse two or more producers for antidumping purposes, theDepartment considers the totality of circumstances of the situation and may place more reliance onsome factors than other factors. As indicated above, 19 C.F.R. § 351.401 outlines some of the factorsthat may be considered in making the collapsing decision. Not all of these factors may be present inevery situation where there is a significant potential to manipulate price or production. Based on thetotality of the circumstances discussed above, the Department continues to find that these circumstancesindicate that there is a significant potential to manipulate the production and pricing of the subjectmerchandise in this case.

Based on the preceding discussion, we conclude that the three affiliated producers aresufficiently related so as to warrant treatment as a single enterprise, and that collapsing these entitiesmay prevent evasion of the antidumping duty order. See Certain Fresh Cut Flowers From Colombia;Final Results of Antidumping Duty Administrative Reviews, 61 FR 42853, 42853 (August 19, 1996). Applying the criteria of our collapsing inquiry as set forth above, we continue to find (1)Ozborsan/Onur, Guven, and Ozdemir are affiliated under section 771(33)(A) and (F) of the Act, (2) ashift in production would not require substantial retooling (if any), and (3) there is a significant potentialfor price or production manipulation due to, among other factors, evidence of significant commonownership and management overlap by senior managers who have a significant influence over theproduction and sales decisions of all companies, belong to the same family. Based on this analysis, wehave determined that the totality of the record evidence weighs in favor of collapsing all threecompanies for the purposes of this investigation.

Comment 11: Whether the Department Erred in Finding that Ozborsan/Onur Failed toProvide Requested Information to the Department and in its Application ofTotal Adverse Facts Available

Ozborsan/Onur argues that in the Preliminary Determination, the Department based its decisionto apply total adverse facts available (AFA) on five reasons. First, Ozborsan/Onur argues that,contrary to the Department’s preliminary findings, Osborsan did indeed provide the Department withthe requested information needed to complete its calculations. Ozborsan/Onur contends that itinformed the Department that its accounting records did not allow it to report costs on a CONNUM-specific basis. Rather, Ozborsan/Onur asserts, it was able to report aggregate costs for producing all ofits products, and it provided this information to the Department in a timely manner. In response to asecond Department request to report costs on a CONNUM-specific basis using a reasonableallocation methodology, Ozborsan/Onur reported separate costs for subject merchandise made fromhot-rolled and cold-rolled coils. Ozborsan/Onur further argues that shortly before the release of thePreliminary Determination, it responded to the Department’s request for a reconciliation of costs basedon CONNUM-specific COP and CV figures. In this response, Ozborsan/Onur reiterated that it doesnot track the costs of specific products.

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Second, Ozborsan/Onur argues that, contrary to the Department’s assertion, Ozborsan/Onurdid provide an explanation as to why it was unable to determine the cost difference between products. Ozborsan/Onur contends that it explained to the Department that although it does not track product-specific costs, it does segregate aggregate costs between LWRPT produced from hot-rolled and cold-rolled coils. Ozborsan/Onur points out that the differentiation between products made from hot-rolledrather than cold-rolled steel had no effect on the Department’s ability to perform necessary calculationsbecause all of the U.S. sales during the POI consisted of subject merchandise produced from one ofthese inputs only.

Third, Ozborsan/Onur contends that, despite the Department’s claims to the contrary, it didprovide the Department with the requested reconciliations of total costs in its financial statement to totalcosts reported to the Department, total production quantities to sales quantities, and depreciationexpense based on revalued fixed asset values. Ozborsan/Onur provides a list the reconciliations itsubmitted to the Department and notes that it was unable to provide the reconciliation of costs reportedon the company’s financial statement to its cost accounting system because it did not maintain a costaccounting system. Furthermore, Ozborsan/Onur argues that another respondent, MMZ, in thisinvestigation was given the opportunity to submit additional factual submissions and reconciliationsfollowing the Department’s Preliminary Determination, but that Ozborsan/Onur was afforded no suchopportunity. Ozborsan/Onur argues that because of the Department’s application of total AFA in thePreliminary Determination, it informed Ozborsan/Onur that it would not conduct verification, whichmade any further reconciliations moot. Therefore, Ozborsan/Onur contends, it was prevented fromparticipating fully in the proceeding because the Department wrongfully determined to collapseOzborsan/Onur, Guven, and Ozdemir, and apply total AFA to the collapsed entity.

Fourth, Ozborsan/Onur contends that the Department was incorrect in its assertion thatOzborsan and Onur failed to provide separate cost files which reconcile to each company’s financialaccounting system. Specifically, Ozborsan/Onur asserts that it explained to the Department that almostall of both company’s production costs are recorded only on Ozborsan’s books and records. Ozborsan/Onur argues that it is able to report labor costs for the two companies on a separate basisbecause Onur does track its labor costs in its own books and records. Ozborsan/Onur observes that itprovided separate labor costs to the Department as requested. Fifth, and lastly, Ozborsan/Onur claimsthat, contrary to the Department’s assertion, it did provide a calculation of general and administrative(G&A) expenses and financial expense ratios based on the fiscal year that most closely coincides withthe POI to the Department in a supplemental questionnaire response.

The petitioners argue in their case brief that the Department properly applied total AFA to thecollapsed entity consisting of Guven, Ozborsan/Onur, and Ozdemir. The petitioners reiterate the list ofdeficiencies identified by the Department in the Preliminary Determination. Based upon thesedeficiencies, the petitioners assert that the Department properly concluded that the informationsubmitted by respondents Guven, Ozborsan/Onur, and Ozdemir was not provided in a form which isamenable to the calculation of dumping margins. According to the petitioners, the deficiencies in the

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data submitted by the respondents made their responses unverifiable. Given the inadequacies of theresponses, the petitioners contend that the Department correctly forewent verification of thesecompanies. The petitioners conclude that the Department has no basis other than the facts otherwiseavailable upon which to derive the margins for these respondents in making the final determination.

Ozborsan/Onur rebuts the petitioners’ arguments by claiming that other than repeating thelanguage used by the Department in the Preliminary Determination, the petitioners provide no furtherelaboration of their unsupported view that Ozborsan/Onur’s responses were inadequate, incomplete orotherwise so deficient that the Department was unable to calculate a dumping margin. Further,Ozborsan/Onur claims that the records shows that it met its burden of providing the Department withrequested information by the established deadlines. Ozborsan/Onur provides a detailed discussion ofits timely responses to the Department’s original and supplemental questionnaires, noting the number ofpages and exhibits in each submission. Based on the voluminous responses it provided to theDepartment’s questions, Ozborsan/Onur contends that the Department has the information necessary toperform its margin calculation. Ozborsan/Onur further claims that the Department could have askedOzborsan/Onur for any additional information needed, as the Department did with the respondent,MMZ. Ozborsan/Onur notes that the Department issued four supplemental section D questionnaires toMMZ, while it issued only one supplemental questionnaire to Ozborsan/Onur. Additionally,Ozborsan/Onur asserts that it could have provided the Department with supplemental information, butthat the Department’s decision to collapse the three companies without verifying their responsesrendered moot the need to supply any additional information.

In rebuttal to the arguments made by Ozborsan/Onur, the petitioners maintain that theDepartment’s application of total AFA to the collapsed entity was appropriate and within its statutorydiscretion. According to the petitioners, the Department clearly articulated its reasons for applying totalAFA because the companies of the collapsed entity filed untimely and incomplete responses to theDepartment’s questionnaires unlike MMZ who filed its submissions within the temporal restrictionsestablished by the Department. The petitioners argue that the failure of Ozdemir to respond completelyand in a timely manner, as well as the inconsistent responses filed by Ozborsan/Onur and Guven, left agap in the investigatory record that had to be filled by the Department using AFA. Consequently, thepetitioners conclude that the use of AFA is in accord with the Department’s statutory authority and isappropriate under the circumstances.

Department’s Position:

We disagree with Ozborsan/Onur. For the Preliminary Determination we determined, basedon the record, that Ozboran/Onur did not act to the best of its ability to cooperate in this investigation. See Preliminary Determination. A complete explanation of the selection, corroboration, and applicationof AFA can be found in the Preliminary Determination, 69 FR at 19393-19396. We continue to find,based on the record evidence and pursuant to the statutory requirements of the Act, thatOzborsan/Onur did not cooperate to the best of its ability, and that the application of AFA to

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Ozborsan/Onur is warranted in this investigation.

Section 776(a)(2) of the Act, provides that, if an interested party (A) withholds information thathas been requested by the Department; (B) fails to provide such information in a timely manner or in theform or manner requested subject to sections 782(c)(1) and (e) of the Act; (C) significantly impedes aproceeding under the antidumping statute; or (D) provides such information but the information cannotbe verified, the Department shall, subject to subsection 782(d) of the Act, use facts otherwise availablein reaching the applicable determination.

Furthermore, section 776(b) of the Act states that if the Department “finds that an interestedparty has failed to cooperate by not acting to the best of its ability to comply with a request forinformation from the administering authority or the Commission, the administering authority or theCommission ..., in reaching the applicable determination under this title, may use an inference that isadverse to the interests of that party in selecting from among the facts otherwise available.” See alsoStatement of Administrative Action (SAA) accompanying the URAA, H. Rep. No. 103-316 at 870(1994).

The evidence on the record of this investigation establishes that, pursuant to section776(a)(2)(A) of the Act, the use of total facts available is warranted in determining the dumping marginfor Ozborsan/Onur’s U.S. sales of subject merchandise because this respondent refused to providerequested information regarding its COP. In its questionnaire and supplemental responses,Ozborsan/Onur refused to provide the following requested information, all of which is necessary tocomplete the Department’s calculations: (1) product-specific costs by CONNUM; (2) an explanationwhy the company was unable to determine the cost differences between products, or an explanation ofwhy the company believes that the differences are insignificant enough that there is no cost differencebetween products; (3) a reconciliation of the total costs in the financial statements to the total costsreported to the Department; (4) separate cost files for Ozborsan and Onur which reconcile to eachcompany’s financial accounting system; (5) a reconciliation of the production quantities to the salesquantities; (6) depreciation expenses based on the revaluated fixed asset values; and (7) calculation ofG&A and financial expense ratios based on the fiscal year that most closely coincides with the period ofinvestigation. In addition, Ozborsan/Onur stated that it “swapped” hot-rolled coils with one of the othercompanies. Ozborsan/Onur claims that no records are kept of such swaps, and Ozborsan/Onur wasunable to quantify these transactions.

As a result of Ozborsan/Onur’s failure to provide the above requested information, theDepartment is unable to use the reported cost of manufacturing data to test home market sales todetermine whether the sales prices can form the basis for the calculation of normal value (NV). Additionally, because of the noted omissions, the cost data cannot be used for DIFMER purposes orfor calculating CV.

In selecting from among facts available, pursuant to section 776(b) of the Act, an adverse

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inference is warranted when the Department has determined that a respondent has “failed to cooperateby not acting to the best of its ability to comply with a request for information.” Section 776(b) of theAct goes on to note that an adverse inference may include reliance on information derived from (1) thepetition; (2) a final determination in the investigation under this title; (3) any previous review undersection 751 or determination under section 753, or (4) any other information on the record.

Adverse inferences are appropriate “to ensure that the party does not obtain a more favorableresult by failing to cooperate than if it had cooperated fully.” See SAA at 870; Borden, Inc. v. UnitedStates, 4 F. Supp. 2d 1221 (CIT 1998); Mannesmannrohren-Werke AG v. United States, 77 F.Supp. 2d 1302 (CIT 1999). The CAFC, in Nippon Steel Corporation v. United States, 337 F. 3d1373, 1380 (Fed. Cir. 2003), provided an explanation of the “failure to act to the best of its ability”standard, holding that the Department need not show intentional conduct existed on the part of therespondent, but merely that a “failure to cooperate to the best of a respondent’s ability” existed, i.e.,information was not provided “under circumstances in which it is reasonable to conclude that less thanfull cooperation has been shown.” Id. To examine whether the respondent “cooperated” by “acting tothe best of its ability” under section 776(b) of the Act, the Department considers, inter alia, theaccuracy and completeness of submitted information and whether the respondent has hindered thecalculation of accurate dumping margins. See Certain Welded Carbon Steel Pipes and Tubes FromThailand: Final Results of Antidumping Duty Administrative Review, 62 FR 53808, 53819-53820(October 16, 1997).

The record shows that Ozborsan/Onur failed to cooperate to the best of its ability, within themeaning of section 776(b) of the Act. In reviewing Ozborsan/Onur’s responses, the Department findsthat Ozborsan/Onur provided information so incomplete that it cannot serve as a reliable basis forreaching the applicable determination. First, Ozborsan/Onur claims it does not track CONNUM-specific costs in its normal books and records. The Department requested CONNUM-specific cost inthe initial section D questionnaire and the first section D supplemental questionnaire. In section II.A.3.of the original section D the Department requests:

{i}f a physical characteristic identified by the Department is not tracked by thecompany’s normal cost accounting system, calculate the appropriate cost differencesfor that physical characteristic, using a reasonable method based on available companyrecords (e.g., production records, engineering statistics). The starting point for anysuch calculation must be the product specific costs as recorded in your normal costaccounting system. If there is a physical characteristic not tracked by the company forwhich the company believes that there is an insignificant cost difference betweenproducts, identify the particular physical characteristic, quantify, and explain yourreasons for not reporting a cost difference.

Ozborsan/Onur simply stated that it did not use a cost accounting system.

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Therefore, the Department informed Ozborsan/Onur in its section D supplementalquestionnaire, dated February 27, 2004, at question 3, that because of the significant variation in thephysical characteristics of products produced by Ozborsan/Onur, the Department does not considerone broad-based average cost to be reasonable for purposes of calculating the COP and CV and thatin situations where the normal accounting records do not allocate product-specific costs to the level ofdetail required by the Department, we require that the respondent allocate costs to specific productsusing any reasonable means available. Ozborsan/Onur responded by stating that the only distinction incosts it could provide was the use of hot-rolled or cold-rolled coils because the raw material input usedis different for the desired end product wall thickness. Ozborsan/Onur stated that for a desired wallthickness of less than 1.5 millimeters (mm), (i.e., Department physical characteristic wall thickness Athrough E) they use cold-rolled coils and if the desired wall thickness is greater than 2.0 mm (i.e.,Department physical characteristic wall thickness G through M) they use hot-rolled coils as the rawmaterial input. For any product with a desired wall thickness between 1.5 mm and 2.0 mm (i.e.,Department physical characteristic wall thickness F) either cold-rolled or hot-rolled coils may be usedfor the raw material input. Ozborsan/Onur went on to say that if a customer requests a certain type ofraw material input then they will produce the end product using the requested raw material inputregardless of the desired wall thickness. While hot-rolled and cold-rolled coils may account for somedifferences in cost, Ozborsan/Onur did not provide the cost differences for production machineprocessing time or conversion costs resulting from different wall thicknesses in products produced fromhot-rolled and cold-rolled coils.

The Department noted in its supplemental section D questionnaire, at question 3, thatOzborsan/Onur also failed to report cost differences for the Department’s other physical characteristiccategories: painted/primed, outside perimeter, wall thickness, or shape. The differences in thesephysical characteristics result in different production costs. Regardless of whether a respondentnormally calculates costs for the different physical characteristics identified by the Department, it mustcalculate different costs for the Department because the production costs are compared to the pricecommanded for the different products.

Second, Ozborsan/Onur claims it notified the Department as to why it could not reportCONNUM-specific costs. This statement is not entirely true. In the antidumping questionnaire forinvestigation, the Department defined seven physical characteristics. These characteristics are asfollows: (1) steel type (i.e., hot or cold rolled); (2) galvanized (i.e., galvanized, other metallic coating,and non-metallic, not galvanized or coated); (3) painted/primed (i.e., painted, primed but not painted,and not painted); (4) outside perimeter (i.e., A through L ranging from 2" or less to 16" or less but notgreater than 14"); (5) wall thickness (i.e., A through M ranging from .035" or less to less then .156" butgreater than .148"); (6) shape (i.e., square or other rectangular); and (7) finish (i.e., plain, beveled, andother).

In its initial section D questionnaire response, Ozborsan/Onur reported that it produced subjectmerchandise from both hot-rolled and cold-rolled coil that was not galvanized and not coated, was

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either painted or not painted, with an outside perimeter of various dimensions, with a wall thickness ofvarious sizes, and was either square or rectangular. We noted in our analysis of Ozborsan/Onur’ssubmissions that there were various products produced for five of the seven physical characteristicscategories defined by the Department. See Supplemental Section D Questionnaire at question 3. Therefore, Ozborsan should have provided a separate cost for products having these physicalcharacteristics.

In its supplemental section D response, Ozborsan/Onur stated that, based on company records,the only physical characteristic for which Ozborsan/Onur can differentiate its costs was wall thickness,because the wall thickness determines whether hot-rolled coils or cold-rolled coils are used for the rawmaterial input. Ozborsan/Onur provided a new cost database which separated monthly productioncosts for hot-rolled coils and cold-rolled coils. However, Ozborsan still failed to provide CONNUM-specific costs accounting for the other physical differences (e.g., painted or not painted). From theinformation reported in its section D response and supplemental response, the Department determinedthat paint was a significant percentage of total POI production costs. Regardless of whetherOzborsan/Onur notified us that its was reporting only hot-rolled and cold-rolled cost differences, theDepartment required in the section D supplemental questionnaire that Ozborsan/Onur report separatecosts for the other physical characteristics or quantify why these other physical characteristics costswere immaterial.

Third, Ozborsan/Onur claimed it did provide the requested reconciliations. Again, thisstatement is not completely accurate. In section III.B. of the section D questionnaire the Departmentrequested the standard reconciliations. In its response dated January 13, 2004, Ozborsan/Onur saidthat this information is being prepared and will be provided to the Department as soon as it iscompleted. Through this statement, Ozborsan/Onur granted itself an extension of the deadline forsubmitting the requested reconciliations. Moreover, in the greater than four weeks that followed beforethe Department issued its supplemental section D questionnaire, Ozborsan/Onur failed to provide theinformation it claimed it would.

In its supplemental section D questionnaire, at question 23, the Department requested, “inaddition to the reconciliations requested in questions III.B.1- 4, provide a reconciliation of Ozborsan’sand Onur Metal’s 2002 and 2003 financial statements to the respective December 31, 2002 andDecember 31, 2003 trial balances. The reconciliation should show which accounts in the trial balancemake up each number reported in the financial statements. If any adjusting entries are made forfinancial statement purposes but are not entered into the trial balance, show the entries and explain thereason for the entry.” The due date for submitting the requested reconciliations was March 16, 2004. Ozborsan/Onur stated in its supplemental response, dated March 17, 2004, that both companies wereworking on the reconciliations for 2002 and that the December 31, 2003, trial balances would not beavailable until April 2004.

On March 29, 2004, Ozborsan/Onur submitted to the Department a response that included

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partial reconciliations. It included a reconciliation for Ozborsan’s and Onur’s general production costsand labor for the POI as reported in the section D database to cost of goods sold. They did notprovide a reconciliation of the financial statements to the general ledger or trail balance, fiscal year costof goods sold on the audited financial statements to the financial accounting system, total fiscal yearcosts from the financial accounting system to the POI costs from the financial accounting system, nor areconciliation of the total POI conversion costs to the total of the per-unit conversion costs.

It is imperative that the Department have the requested reconciliations on the record prior to thecost verification. Ozborsan/Onur was unwilling to provide the Department with CONNUM-specificcosts which are the basis for determining if all production costs were reported and if the reportedproduction costs were properly allocated between subject and non-subject merchandise.

Section 773(f)(1)(A) of the Act specifically requires that costs be calculated based on therecords of the exporter or producer of the merchandise, if such records are kept in accordance with thegenerally GAAP of the exporting country and reasonably reflect the costs associated with theproduction and sale of the merchandise. In accordance with the statutory directive, the Department willaccept costs of the exporter or producer if they are based on records kept in accordance with GAAPof the exporting country and reasonably reflect the costs associated with the production and sale of themerchandise (i.e., the cost data can be reasonably allocated to subject merchandise). In determining ifthe costs were reasonably allocated to all products the Department will, consistent with section773(f)(1)(A) of the Act, examine whether the allocation methods are used in the normal accountingrecords and whether they have been historically used by the company. Before assessing thereasonableness of a respondent's cost allocation methodology, however, the Department must ensurethat the aggregate amount of the reported costs captures all costs incurred by the respondent inproducing the subject merchandise during the period under examination. This is done by performing areconciliation of the respondent’s submitted COP and CV data to the company’s audited financialstatements, when such statements are available. The Department generally must rely on theindependent auditor’s opinion concerning whether a respondent’s financial statements present the actualcosts incurred by the company, and whether those financial statements are in accordance with GAAPof the exporting country. In situations where the respondent’s total reported costs differ from amountsreported in its financial statements, the overall cost reconciliation assists the Department in identifyingand quantifying those differences in order to determine whether it was reasonable for the respondent toexclude certain costs for purposes of reporting COP and CV. Although the format of the reconciliationof submitted costs to actual financial statement costs depends greatly on the nature of the accountingrecords maintained by the respondent, the reconciliation represents the starting point of a costverification because it assures the Department that the respondent has accounted for all costs beforeallocating those costs to individual products. Ozborsan/Onur did not provide the Department with therequired reconciliations. Therefore, we could not satisfy ourselves that Ozborsan/Onur accounted forall costs before allocating them to individual products. See Notice of Final Results of AntidumpingAdministrative Review; Certain Cut-to Length Carbon Steel Plate From Mexico, 64 FR 76 (January 4,1999) and accompanying Issues and Decision Memorandum at Comment 1.

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Pursuant to section 782(e) of the Act, the Department shall not decline to consider submittedinformation if all of the following requirements are met: (1) the information is submitted by theestablished deadline; (2) the information can be verified; (3) the information is not so incomplete that itcannot serve as a reliable basis for reaching the applicable determination; (4) the interested party hasdemonstrated that it acted to the best of its ability; and (5) the information can be used without unduedifficulties. In this case, the cost information submitted by Ozborsan/Onur fails to satisfy section782(e)(2) and (3) of the Act. Ozborsan/Onur failed to report the requested cost reconciliations. Without these reconciliations, the Department cannot determine whether the aggregate amount of thereported costs captures all costs incurred by Ozborsan/Onur in producing the subject merchandiseduring the POI. Without being able to determine whether all costs have been reported, the Departmentcannot verify that the reported costs were accurate and complete. Furthermore, the reported costscannot be used as a basis for reaching the applicable determination. The Department conducts itsmargin calculations on a CONNUM-specific basis, thereby requiring respondents to submit their costsaccordingly. In this case, contrary to section 782(e)(3) of the Act, Ozborsan/Onur failed to report itscosts in a manner useable for reaching the applicable determination; i.e., Ozborsan/Onur failed to reportCONNUM-specific costs. For these reasons, the Department has declined to use Ozborsan/Onur’sreported costs.

Fourth, Ozborsan/Onur claimed it was denied equal opportunity since MMZ was givenadditional opportunity to clarify its responses. This is not the case. In its section D response and firstsection D supplemental response, MMZ submitted information that was verifiable as required bysection 782(e) of the Act and needed only minor clarification, as opposed to Ozborsan/Onur, whichsubmitted a non-responsive response. Ozborsan/Onur, on the other hand, provided only one averagecost for hot-rolled products and one average cost for cold-rolled products. MMZ’s first supplementalresponse, however, contained CONNUN-specific costs which it reconciled to its records. Ozborsan/Onur, on the other hand, did not provide CONNUM-specific costs, did not quantify orexplain why the cost differences not reported to the Department were immaterial, did not provide therequested reconciliations, and did not provide the company-specific separate cost files. Ozborsan/Onur was given two opportunities by the Department to submit the requested information orto provide reasonable allocation methodologies, and never ever met these threshold responses.

Finally, Ozborsan/Onur claimed it provided separate cost files. This statement is also notaccurate. In question 3.a of the section D supplemental questionnaire, the Department stated:

it is imperative that you submit new COP/CV databases (one for Ozborsan and one forOnur), that include a unique cost for each control number (“CONNUM”) as defined bythe physical characteristics listed in the Department’s model match criteria at AppendixV of the questionnaire, for each month. If Ozborsan’s and Onur Metal’s accountingrecords do not track cost differences for certain physical characteristics, you should usesome reasonable method based on company records (e.g., engineering studies) for

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allocating costs to products on a CONNUM-specific basis.

Ozborsan/Onur submitted in its response to this supplemental questionnaire a new cost database thatseparated monthly production costs for hot-rolled and cold-rolled coils but did not report costsseparately for each product. Ozborsan/Onur failed to provide CONNUM-specific costs and separatecosts for Ozborsan and Onur, as requested by the Department. The request for separate data sets foreach producer is necessary because it allows the Department to verify each individual producer throughmatching the reported company-specific data to that company’s books and records.

Ozborsan and Onur maintain separate financial statements in the ordinary course of businessand submitted the 2003 Income Statement for each company to the Department. Also, it appears thatOzborsan invoices Onur for factory expenses but no explanation on how these fees are calculated wasprovided. From analyzing the information provided on the record it would be necessary for Ozborsanto provide separate cost files for Ozborsan and Onur, information that was within its control.

In the Preliminary Determination, the Department collapsed Ozborsan/Onur into a single entitywith Guven and Ozdemir. Even if Ozborsan/Onur had provided full and complete responses to theDepartment’s antidumping duty questionnaire and supplemental questionnaires, we note that Guven andOzdemir failed to provide requested information and also received total AFA. See PreliminaryDetermination 69 FR at 19393-19394. In determining whether a collapsed entity cooperated to thebest of its ability, the Department reviews all components that constitute the collapsed entity. In thecurrent case, even if Ozborsan/Onur had provided complete and accurate responses, the remaining twocomponents of the collapsed entity did not. Therefore, in this hypothetical situation, the Departmentwould have continued to apply total AFA to the collapsed entity, including Ozborsan/Onur.

The information requested cannot be obtained elsewhere. Without this critical information, theDepartment cannot accurately determine the dumping margin for Ozborsan/Onur. Ozborsan/Onur’sfailure to provide information to the Department in its original or supplemental questionnaire responsethat could not be obtained elsewhere demonstrates a pattern of unresponsiveness that supports ourdetermination that Ozborsan/Onur failed to cooperate to the best of its ability with the Department’srequests for information. Despite the Department’s directions in the questionnaires and the lettersgranting extensions, Ozborsan/Onur did not provide the information requested by the Department,made no effort to explain any difficulties it was having in supplying the information, and did not proposean alternate form of submitting the information. Therefore, in selecting from among the facts otherwiseavailable, the use of inferences adverse to Ozborsan/Onur is appropriate.

Pursuant to section 776(b) of the Act, the Department is basing Ozborsan/Onur’s margin onAFA for purposes of the final determination. Section 776(b) of the Act authorizes the Department touse as AFA information derived from the petition, the final determination from the LTFV investigation, aprevious administrative review, or any other information placed on the record. Accordingly, in selectingAFA with respect to Guven, Ozborsan/Onur, and Ozdemir, we have applied the margin rate of 34.89

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percent, which is the highest estimated dumping margin set forth in the notice of initiation. See Noticeof Initiation of Antidumping Investigations: Light-Walled Rectangular Pipe and Tube from Mexico andTurkey, 68 FR 57667 (October 6, 2003).

When using facts otherwise available, section 776(c) of the Act provides that, when theDepartment relies on secondary information (such as the petition), it must, to the extent practicable,corroborate that information from independent sources that are reasonably at its disposal. The SAAclarifies that “corroborate” means that the Department will satisfy itself that the secondary information tobe used has probative value. See SAA at 870. The Department’s regulations state that independentsources used to corroborate such evidence may include, for example, published price lists, officialimport statistics and customs data, and information obtained from interested parties during the particularinvestigation. See 19 C.F.R. § 351.308(d); see also SAA at 870.

To assess the reliability of the petition margin for the purposes of this investigation, to the extentappropriate information was available, we reviewed the adequacy and accuracy of the information inthe petition during our pre-initiation analysis and for the Preliminary Determination. Also, we examinedevidence supporting the calculations in the petition to determine the probative value of the margins in thepetition for use as AFA for the preliminary determination. In accordance with section 776(c) of theAct, to the extent practicable, we examined the key elements of the EP and NV calculations on whichthe margins in the petition were based. See Memorandum from Paige Rivas, International TradeAnalyst, to Tom Futtner, Acting Director, Office 4, “Corroboration of Data Contained in the Petitionfor Assigning Facts Available Rates,” dated April 6, 2004.

As noted in the Preliminary Determination, the calculation of CV in the petition contains anamount of zero for profit because the Turkish producer relied upon for the calculation of the financialratios reported a loss in its financial statements. We stated in the Preliminary Determination that wewould consider adding profit to CV for the final determination in the event we are able to identify apublicly available amount for profit. Since that time, we have been unable to locate a publicly availableamount for profit, nor has any interested party placed a publicly available amount for profit on therecord. As there is no publicly available amount for profit, we were unable to add profit to CV.

As fully discussed in the Preliminary Determination, the Department corroborated EP bycomparing the U.S. market price quotes from the petition with official U.S. import statistics and

found the prices used by the petitioners to be reliable. For purposes of corroborating CV, wecompared the cost data submitted in the petition to information submitted by MMZ. Specifically, wecompared net CV for one CONNUM for MMZ to the CV used to calculate the highest margin thepetition. This CONNUM is identified in Exhibit C2 of MMZ’s March 24, 2004, submission as

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containing production quantities that are comparable to the product with the highest margin in thepetition. We found the CV used by the petitioners to be reliable. Therefore, based on our efforts,described fully in the Preliminary Determination, to corroborate information contained in the petition,and in accordance with section 776(c) of the Act, we consider the highest margin in the petition to becorroborated to the extent practicable for purposes of this final determination.

Recommendation

Based on our analysis of the comments received, we recommend adopting the positionsdescribed above. If these recommendations are accepted, we will publish the final determination andthe final weighted-average dumping margins in the Federal Register.

Agree ____________ Disagree_______________ Let’s Discuss___________

______________________________James J. JochumAssistant Secretary for Import Administration

______________________________Date